/ world today news/ After the financial crisis of 2008-2009, Central Banks increased their gold reserves by at least 7 thousand tons through purchases of the precious metal.
The yellow metal always holds its price
The topic of gold is rarely discussed in the Russian and world media. Meanwhile, gold has been and remains a vital part of the financial and monetary systems of many countries around the world. In addition, the precious metal invisibly increases its role and place in these systems.
At the Jamaica Monetary and Financial Conference in 1976, it was decided to replace the gold dollar standard (adopted at the Bretton Woods Conference in 1944) with the paper dollar standard. This means that gold is deprived of the status of money, it is reduced to the rank of a precious metal. In economics textbooks, this is called demonetization of gold.
But complete demonetization did not happen. Monetary authorities (central banks and ministries of finance) in most countries around the world continued to hold gold as part of their international reserves. At the same time, surprisingly, in official documents and statistical reports it continues to be called “monetary gold”.
Of course, there was some reduction in official gold reserves, but only partially. This is how, for example, the value of these reserves has changed in three countries that in 1970 had record amounts of gold in reserves. US gold reserves for the period 1970-1980 decreased from 8,839.2 tons to 8,221.2 tons; in Germany – from 3536.6 tons to 2960.5 tons; in France – from 3138.6 tons to 2545.8 tons.
Already in the 1980s, the process of selling precious metal from reserves by the monetary authorities sharply slowed down, and in some places gold reserves were frozen. Here are, for example, the statistics of the gold reserves of the United States for individual years (in tons): 1990 – 8146.2; 2000 – 8.136.9; 2010 – 8.133.5. After that, the US Treasury Department (the gold reserve is on its balance sheet) consistently shows the same gold reserve figure from year to year – 8133.5 tons.
It should be borne in mind that the total value of gold and foreign exchange reserves in almost all countries of the world tends to increase due to the accumulation of reserve currencies (dollar, British pounds sterling, Japanese yen, euro, etc.). Therefore, the share of gold in the total value of international (gold and foreign exchange) reserves is decreasing. But even so, in the international reserves of the United States and most Western European countries, the gold component of reserves was greater than the foreign currency component. The monetary authorities of the West clearly did not want to part with the gold.
A turning point in the fate of reserve gold was the global financial crisis of 2008-2009, which showed the instability of the main reserve currency – the US dollar. Since 2010, according to the IMF and the World Gold Council (WGC), global central banks have turned from net sellers of the precious metal to net buyers.
Of course, in the 2000s the volume of net gold sales was quite symbolic. Also, the volumes of net gold purchases were also very small to begin with. But then the volume of net purchases intended to replenish gold reserves began to increase.
And last year 2022, net purchases of the precious metal by central banks reached a record value of 1,081 tons. As experts say, such a volume of net purchases of gold by central banks was recorded 55 years earlier – in 1967, when gold – the dollar standard was in effect worldwide.
Based on the results of three quarters of 2023, net purchases of gold by central banks amounted to exactly 800 tons. Experts do not rule out that a new record for net purchases will be set at the end of the year. And therefore, in just two years (2022-2023), the total gold reserves of central banks will increase by more than 2 thousand tons.
The increase in gold reserves in the world has recently been provided, according to WGC statistics, by the central banks of countries such as China, India, Turkey, Poland, Egypt, Qatar and the UAE. As we can see, these are the central banks of non-Western countries.
And the monetary authorities of most Western countries have in recent years taken the position: “don’t sell and don’t buy”. I wrote about all this the other day in the article “Latest trends in the world of gold: Central banks’ appetite for the precious metal grows”
And here is the list of the 10 largest countries by the amount of gold reserves as of the middle of this year, according to WGC estimates (tonnes; in brackets is the share of gold in the total volume of gold and foreign reserves, %).
1. USA – 8.133.5 (66.3)
2. Germany – 3359.1 (66.0)
3. Italy – 2451.8 (62.9)
4. France – 2436.4 (57.8)
5. Russia – 2298.5 (21.4)
6. China – 2113.46 (3.3)
7. Switzerland – 1040.0 (5.6)
8. Japan – 846.0 (3.5)
9. India – 795.0 (6.9)
10. Netherlands – 612.5 (55.4)
It should be noted that the World Gold Council, in its statistics on purchases of the precious metal by central banks, notes that its statistics reflect only so-called “recorded transactions” in the precious metal. But there are also so-called “unregistered transactions”.
Therefore, the scale of gold purchases by central banks in the WGC and IMF documents may be significantly underestimated. Experts especially often draw attention to the fact that there is a high probability of a significant underestimation of gold purchases for reserves in China. Accordingly, official statistics on gold reserves may provide underestimated figures.
In this sense, the recent article “Estimated global official gold reserves reach record high” is interesting. Its author, gold analyst Jan Nieuwenhuijs, provides forecasts for central banks’ gold reserves, taking into account unregistered transactions for the purchase of the precious metal.
A particularly strong underestimation of official gold reserves is observed in China. The author of the article notes that he has been following China for many years using various sources. And according to him, the value of China’s gold reserves today is at least 5 thousand tons.
For a number of countries, reserve statistics have not been updated for many years. Both the IMF and the WGC reproduce the latest official figure available in their data. So Syria’s central bank stopped reporting its gold reserves in 2011. To calculate global reserves, the IMF uses the latest known data, assuming Syria still holds 26 tons of gold.
In addition, according to the expert, the IMF and the WGC do not include in their calculations the gold that the sovereign funds buy. But this is also part of the gold reserve. According to expert estimates, it is about 100 tons of unreported metal.
According to the calculations of Jan Nieuwenhuis, after the financial crisis of 2008-2009, Central Banks through purchases of the precious metal increased their gold reserves by at least 7 thousand tons. According to expert estimates, by the middle of this year, the real total gold reserves of all countries in the world amounted to 38,764 tons.
While according to official data, based only on registered transactions, they amount to just over 35 thousand tons. The data on gold reserves turns out to be understated by about 10 percent. It is not difficult to see that the discrepancy between the two figures is primarily due to the underestimation of China’s gold reserves.
The real value of gold reserves as of the middle of this year was more than 400 tons higher than the record reached in 1965, and amounted to 38,347 tons. It turns out that today the reserves of monetary authorities (mainly central banks, but partly treasuries) contain such an amount of precious metal as has never existed in the history of mankind.
From the 1980s until the outbreak of the First World War and then in the period between the First and Second World Wars, the share of gold in the international reserves of the world varied in the range of 80 to 90 percent (and even a little more). During the period of the gold-dollar standard (ie, from the second half of the 1940s to the mid-1970s), the share of gold in international reserves (worldwide) gradually decreased from 70 to 40%.
After the gold-dollar standard was replaced by a paper-dollar one, the decline in the share of gold in international reserves continued. In the 2000s, this share dropped to 10 percent on a global average. But after the global financial crisis of 2008-2009, it slowly started to rise. Currently, according to expert estimates, it has reached 17 percent.
For the period 2010-2023, the value of global gold reserves increased by 66%, while foreign exchange reserves increased by only 30%. According to the expert, in general, for the period from 1880 to 2023, the average share of gold in international reserves was 58%. He predicts that gold’s share of international reserves will continue to grow.
Meanwhile, 83% of international reserves are held in various currencies. The majority of foreign exchange reserves are in US dollars, and most investments in dollars have been and continue to be made in the form of purchases of US government securities. But interest in US Treasury debt securities by non-residents is gradually declining.
At the end of the global financial crisis of 2008-2009, the maximum share of foreign holders of US Treasuries was recorded – 35%, and the main among non-residents are foreign central banks, which represent almost 20% of all market debt of the US government.
According to Jan Nieuwenhuis, by the middle of this year the picture looked like this: the share of foreign holders fell to 23%, including the share of foreign central banks – to 12%.
According to Jan Nieuwenhuis, this is further evidence that gold, which was banished from the world of money at the Jamaica conference, is now returning to this world. The US dollar was then called upon to finally and completely replace gold in the world of money. Today we are witnessing the reverse process.
Translation: ES
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