“He who owns gold makes the rules” may be overstated, but governments continue to store up gold as an inflation hedge and as an emergency monetary reserve.
Here is a look at the five countries with the highest gold reserves according to the WGC.
China may not yet possess as much gold in reserves as Portugal or Italy, but its central bank is rapidly amassing gold reserves. Much of it may have been purchased covertly to prevent its purchase becoming public through market transactions.
China’s increase in gold reserves may be driven by its desire to diversify its foreign exchange reserves, reduce reliance on the US Dollar, and instil confidence in the renminbi as an international currency. Indeed, some commentators have even speculated that Beijing might even use these gold holdings as weapons during a financial crisis situation.
China’s Peoples Bank and State Administration of Foreign Exchange (SAFE) both own extensive amounts of gold reserves; however, China’s unwillingness to disclose official reserves suggests that its true holdings exceed even these official numbers of 2,068 tonnes reported by SAFE.
Central banks around the world have been amassing gold at an unprecedented rate, typically driven by negative interest rates or dollar weakness; but lately this phenomenon seems more driven by diversifying overall reserves than anything else.
As inflationary pressures mount, many investors have turned to gold as a hedge against higher prices. Unfortunately, inflation creates uncertainty – hence why India’s Reserve Bank of India (RBI) increased its gold reserves.
This year, the RBI increased its gold purchasing, adding to its reserves in seven of twelve months – placing them amongst Russia as top gold buyers. Unfortunately, though, its holdings do not include highly pure pieces; most were purchased through IMF sale of 2009, which consisted mostly of old US Assay Office melts stored in Nagpur vaults.
One popular saying holds true to this day: those who possess gold make the rules. For decades, countries accumulated it due to its longstanding and reliable nature as an international currency.
Gold can have its drawbacks as well, including losing interest income when assets are converted into bullion and the risk of confiscation.
Admiral Kolchak’s forces used World War One as an opportunity to move the czarist gold holdings out of Russia to Siberia; however, following the Russian Revolution it has since been replenished and continues to increase today.
In 2022, after Western nations instituted sanctions for Russia’s invasion of Ukraine, its central bank stopped exporting domestic gold as an effort to defend against foreign-backed sanctions which might undermine its ruble currency and weaken it further. This move was designed to provide Russia protection from possible foreign-backed measures which may cause ruble weakness.
France currently holds 2,435.4 tons of gold reserves, making them one of the five largest official sector holders worldwide. France stands behind Germany and Italy when it comes to holding official sector gold reserves.
At the height of Bretton Woods, France aggressively converted its paper currency to gold reserves while pushing for reform to international monetary systems, hence having such an unusually high proportion of their foreign reserve holdings invested in gold reserves.
While contemporary governments no longer mandate that their currency be backed by gold, many still maintain large stocks of bullion as an insurance against hyperinflation or another economic catastrophe. That’s why governments continue to build up their gold reserves – its stability makes it ideal compared to volatile assets like stocks.
Switzerland boasts one of the highest total gold reserves, yet has recently sold off some of its holdings to keep up with international market trends and maintain equilibrium between exchange rates and demand.
The Swiss National Bank holds over 1,040 tonnes of official gold reserves, placing it among the top ten holders worldwide. This equates to 231 grams per capita – more than India, China or France!
Though modern governments no longer mandate their currency be backed by gold, many still maintain vast bullion reserves as a hedge against hyperinflation or other economic crises. The United States boasts the world’s largest bullion stockpile with nearly 8 tons – which surpasses even that of all three other nations combined!