As a precious metal, gold is a popular investment. There are many reasons why people buy it; some want to protect their wealth from inflation, while others believe that gold is a reliable store of value.
Historically, governments used to back their paper money with gold. This international monetary system was abandoned in the 1970s, but countries still hold large amounts of gold.
1. United States
The United States holds the largest gold reserves in the world. Its Fort Knox bullion depository contains around 8% of the world’s total gold stockpile, according to US Mint figures.
During the height of the Bretton Woods system, the United States offered to house and protect other countries’ gold in exchange for dollars. Today, it holds 8,133.5 tons of gold, a figure that is higher than those of any other country.
Central banks are net buyers of gold for 11 consecutive years, according to the World Gold Council (WGC). Demand increased in 2020 and dipped during the COVID-19 pandemic but purchases were again strong in the second half of the year.
Despite its low profile in the West, Germany is one of the world’s leading markets for gold. A recent survey commissioned by the German bank Reisebank revealed that over 22% of all the gold in Germany is held by private German citizens.
Interestingly, the Bundesbank is also one of the world’s top three holders of gold; it keeps about half of its reserves in Frankfurt and the rest abroad at the Federal Reserve Bank of New York and other major banks in Europe.
The German Audit Court recently demanded that the Bundesbank conduct annual audits and physically inspect its gold reserves worldwide, including those in New York and London. This may seem a bit nuts, but there is something to be said for it–and it could put to rest some of the suspicions that the central bank gold is being misrepresented and deceived.
The Italian government is in the midst of a political battle over its gold reserves. Italy’s antiestablishment Lega party is pushing for ownership to be transferred from the Banca d’Italia to the state.
However, the European Central Bank has ruled that EU treaties do not allow the transfer of official gold reserves from the balance sheet of the Bank of Italy to that of the state.
As a result, Italian government officials are trying to sell off some of their gold in order to pay for budget deficits. This would be a difficult and complicated process, which will only add to Italy’s debt problem.
Gold is a popular asset, used to hedge against inflation and fluctuating currency exchange rates. Governments and central banks stockpile it to diversify their assets, but also as a way to insulate them from economic turmoil.
France is the world’s fourth largest official gold holder with 2435.4 tonnes. Much of this is held at the Banque de France’s vaults in Paris, although some gold is stored abroad in trading markets as well.
As a member of the Eurosystem, France transferred its foreign exchange and gold reserve assets to the European Central Bank in 1999. The ECB does not publish specific statistics on its gold holdings, but it is reasonable to assume that France’s 161 tonnes of ECB-owned gold is held at the Banque de France.
China is the world’s largest gold producer, and also has the highest gold imports. The Chinese central bank does not disclose its gold purchases but they have been increasing in recent years.
With gold prices under pressure in 2018 from an aggressive US monetary tightening, China has stepped up its buying. This has helped to support prices.