Gold “is an asset that people want to hold when they are very fearful about potential financial-market catastrophe or economic troubles and tail risks,” said Federal Reserve Chief nominee Janet Yellen before the Senate Banking Committee last month. “When there is financial-market turbulence, often we see gold prices rise as we see people flee into it.”
While the global financial system has been relatively stable this year, nations around the globe continue to keep an interest in gold. In the first three quarters of 2013, total gold demand totaled 2,805 tonnes, according to the World Gold Council. Central banks accounted for almost 300 tonnes, worth about 14.1 billion.
The precious metal has been viewed as a safe haven for over 5,000 years, and several nations hold more than 1,000 tonnes. Let’s take a look at the 10 nations with the largest gold reserves, based on international financial statistics and the WGC.
India officially holds 557.7 tonnes of gold, which represents 8.4 percent of its reserves. In 2009, the nation purchased 200 tonnes of gold from the International Monetary Fund for $6.7 billion. It was the IMF’s first such sale in almost a decade.
The nation’s consumer sector is also a big believer in gold, as India is the second-largest gold consumer in the world. In the third-quarter, demand for jewelry and gold bars/coins reached 148.2 tonnes.
With a large economy in relation to its population, the Netherlands holds 612.5 tonnes of gold, which represents 54 percent of its reserves. Earlier this year, a citizens committee in the nation filed a petition demanding the central bank release information about the Netherlands gold hoard, including the storage location.
After two decades of low interest rates, it’s not too surprising that Japan has one of the largest gold reserves in the world. The nation holds 765.2 tonnes of gold, representing 2.6 percent of its reserves.
Interestingly, the Japanese yen and gold are becoming a well-known investment pick for 2014. Kyle Bass, founder of Hayman Capital, recently explained that if he could only put on one trade for the next 10 years it would be to purchase gold in yen.
Russia holds 1,015.1 tonnes of gold, which represents 8.3 percent of its reserves. Russia has more than doubled its gold reserves in recent years, and is likely to keep buying. In 2011, Russian Prime Minister Vladimir Putin claimed the United States was “like a parasite” on the global economy and said the dominance of the dollar as a world reserve currency is a threat to the financial system. In the third-quarter, Russia’s central bank purchased more than 18 tonnes of gold.
The land of international banking holds 1,041.1 tonnes of gold, which represents 8.3 percent of its reserves. Some citizens feel very strongly about gold. Earlier this year, the Swiss People’s Party collected enough signatures to force a referendum on a proposal to prevent the nation’s central bank form selling any of its gold reserves, and require it to hold at least 20 percent of its assets in the precious metal.
The world’s second-largest economy holds 1,054.1 tonnes of gold, which represents only 1.2 percent of its reserves. However, this underestimates China’s true holdings. The People’s Bank of China has not formally disclosed any changes to its gold holdings in years, and it’s widely believed that the central bank is purchasing gold to diversify its reserve holdings.
In 2009, China announced it boosted its gold reserves by 454 tonnes via acquiring gold quietly over the previous five years. It represented an impressive 76-percent increase in gold reserves. Today, China is estimated by gold analysts to have around 2,000-3,000 tonnes of gold reserves.
France holds 2,435.4 tonnes of gold, which represents about 66.1 percent of its reserves. The nation has been relatively quiet in the gold market, but six men were recently arrested in Paris and surrounding areas for involvement in stealing gold bars worth about 1.6 million euros from an Air France plane. On September 19, the gold was stolen from the plane shortly before it left Paris’s Charles de Gaulle airport. The plane was bound for Switzerland.
During the depths of the eurozone crisis, some analysts recommended that Italy use its gold stockpile to raise funds and restore confidence. However, the nation still holds 2,451.8 tonnes of gold, representing 67.2 percent of its reserves.
Much like Italy, speculation has been building that Germany may use its gold reserves to boost the European bailout fund — but this never materialized. Germany holds 3,387.1 tonnes of gold, which represents 68.7 percent of reserves.
At the beginning of this year, Germany’s Bundesbank confirmed reports and announced it will repatriate a portion of its foreign gold reserves. Over the next seven years, the central bank intends to store half of Germany’s gold reserves in its own vaults within the country, compared to only 31 percent now. The other half will remain in New York and London.
In a press release, the central bank explained that, “With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time.”
1. United States
Despite ending the gold standard in 1971, the world’s largest economy holds 8,133.5 tonnes of gold, representing 71.7 percent of reserves. On August 15, 1971, President Nixon made the following statement that gold bugs will remember forever.
“In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy — and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connally to suspend temporarily the convertibility of the American dollar except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.”
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Disclosure: Long EXK, AG, HL, PHYS
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from Wall St. Cheat Sheet