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Visualizing Two Decades of Central Bank Gold Reserve Changes

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Changes in central bank gold reserves

National gold reserves changes over 20 years

Gold-Hoarding Nations: Changing Gold Reserves Since 2000

Gold has long been an important hedge in times of uncertainty, and unlike foreign currencies, equities, or debt securities, its value is not dependent on any company or nation’s solvency.

This has made gold an essential part of many national central bank reserves, especially as the monetary supply of many nations continues to expand and central banks are exploring digital currencies which could be reserve or gold backed.

With gold still making up a large part of many nations’ reserves, how have central banks been managing the precious metal?

Using data from the IMF’s International Financial Statistics, this infographic looks at the top 20 countries by their central bank’s gold holdings and how their national gold reserves have changed since 2000.

European Nations Sold Gold, but Still Hold Plenty

Many European nations started the millennium by reducing their gold holdings. The Euro Area (including the European Central Bank) sold a total of 1,885.3 tonnes over the past two decades, reducing gold holdings by around 15%.

Despite this, European nations like Germany, Italy, and France still retain some of the largest gold reserves, with Italy not having touched their gold at all over the past 20 years.

After the termination of the Central Bank Gold Agreement in July of 2019, the European Central Bank made it clear that gold is still held in high standard by the Euro Area’s nations:

“The signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits and none of them currently has plans to sell significant amounts of gold.”
ECB

Small Countries, Big Buyers

While nations across Europe sold off some of their central bank gold reserves, smaller countries like Kazakhstan, Cambodia, Kyrgyz Republic, Belarus, Qatar, and Uzbekistan have been some of the biggest gold purchasers relative to their GDP.

Large Gold Purchases of Six Small Nations

 Central Bank Gold Reserves (tonnes) in 2021Net Change in Gold Reserves (tonnes) since 2000Purchased Gold USD Value (at $1,730/oz)Nominal GDP in USDPurchased Gold as a Percentage of GDP
Uzbekistan*340.6+159.9$8.89B$63.30B14.0%
Kazakhstan390.7+334.7$18.64B$180.72B10.3%
Kyrgyz Republic16.8+14.2$0.79B$8.45B9.3%
Cambodia45.5+33.1$1.84B$28.55B6.4%
Belarus**50.0+40.7$2.26B$60.97B3.7%
Qatar56.7+56.1$3.12B$155.57B2.0%

*Uzbekistan data only available from 2013 onwards
**Belarus data only available from 2002 onwards
Source: IMF World Economic Outlook Database

None of the nations in the table above rank in the top 50 by nominal GDP, however, their central bank reserves have greatly grown in value thanks to their gold accumulation over the past 20 years. Along with this, countries like Uzbekistan are focusing on making gold production and circulation a key part of their economies.

In November of 2020, Uzbekistan introduced a new gold product available at commercial banks to make buying and selling gold more accessible: gold bars weighing 5, 10, 20, and 50 grams in a protective card packaging with a matching QR code for authentication.

As Uzbekistan pushes to become one of the world’s largest gold producers over the next few years, this product reintroduces gold in smaller purchasable amounts for everyday citizens.

A Turkish Delight of Gold Purchases

Since 2017, Turkey has increased gold within their central bank reserves from 116 to 527 tonnes (a 354% increase), while wrestling with rising inflation and a plummeting Turkish lira.

Alongside the central bank’s gold purchases, the Turkish government introduced gold-backed bonds and changes to gold regulations in an attempt to draw out household gold deposits. To further strengthen the nation’s economic independence and cut down gold import costs, Turkey is planning to radically ramp up domestic gold production to 100 tonnes of gold per year.

The country broke records in 2020 with 42 tonnes of gold produced, and the recent discovery of a 3.5M oz gold deposit (valued ~$6B) will help supply the nation’s surging demand for the precious metal.

A Common Trend: Gold is Rising as a Percentage of Reserves

One trend that is common across many nations: gold as a percentage of reserves has risen consistently since Q3 of 2018 as gold’s price has skyrocketed.

Most European central banks have gold reserves above the 50% mark of their reserves despite mostly selling gold over the past two decades. On the other hand, China and India have been aggressively purchasing gold since 2000, and yet gold still remains at single-digit percentages of their total reserves with plenty of room for expansion.

chart of gold as a percentage of central bank reserves

While some major nations’ gold holdings are reaching 70-80% of their reserves, the head of foreign exchange reserves management for the Central Bank of Hungary, Róbert Rékási, doesn’t think that nations are approaching a ceiling for this figure, and that central banks are still willing to increase their gold exposure.

China and Russia’s 20-Year Accumulation

The two nations that have increased their gold exposure the most over these past two decades have been China and Russia, which have purchased 1,553 tonnes (393% increase) and 1,873 tonnes (443% increase) respectively.

These aggressive purchases highlight a potential distancing from a weakening U.S. monetary system. The U.S. dollar was recently overtaken by gold as a percentage of Russian reserves, and has fallen to 25-year lows in global central bank foreign exchange reserves.

As both China and Russia have begun preparing central bank digital currencies, the two nations could be looking to set new monetary standards and strengthen their roles in the world’s evolving financial system.

The Next 20 Years of Gold Reserves

Gold’s value has stagnated over the past few months while bitcoin and equities have taken the spotlight, however, central banks still consider it an essential part of their reserves.

Developing nations and global heavyweights like Russia, China, and India have all been accumulating and prioritizing gold production, and while European countries have sold some gold the past two decades, they still rank among the largest holders of the precious metal.

As central bank digital currencies loom on the horizon, gold still plays an essential role in the composition of national central bank reserves backing these new financial systems, providing a familiar inflation hedge for central banks and investors in these uncertain monetary times.

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Real Assets

How the Savings Account Became a Destroyer of Wealth

The interest income needed to beat inflation since 1994 has varied, but in the last 13 years, savings accounts failed to live up to the task.

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How the Savings Account Became a Destroyer of Wealth

Has saving money ever been less rewarding? The average U.S. personal savings account now returns about $100, or 0.1% per $100,000 in interest income on deposits. This is well below the $1,283 per $100,000 required to beat inflation.

In fact, savings accounts have been eroding household wealth for some 13 years. This data from JP Morgan reveals that the interest income needed to beat inflation has consistently fell short tracking back to 2008-2009.

This is a result of ultra low interest rates, as the amount needed to beat inflation has remained fairly steady. When interest rates took a nosedive during the Great Recession, so too did the earnings potential on savings accounts.

Withering Interest Income

Typically, banks and financial institutions pay interest on deposits to incentivize keeping your money with them. These deposits are funneled into their lending business, where they charge higher rates. The difference is called net interest margin, a common financial industry metric.

All things equal, rates go up when demand for loans exceeds the supply of loanable funds, and go down when the reverse holds true. But central bank money printing has altered this equation. With quite literally trillions injected via quantitative easing, the money supply, or supply of loanable funds, has skyrocketed well past any expected level of demand. As a result, rates today are near 700-year lows.

Can The Savings Account Be Saved?

If interest rates do pick back up, the returns on the typical savings account should follow.

Interestingly, one factor that could buoy returns on savings is inflation itself, which is starting to rise. Given one of the Fed’s mandates is to control inflation, any prolonged and serious uptick could mean opening the monetary policy tool box and influencing matters to offset this. This includes raising rates, possibly well above inflation.

An ultra low rate environment has become the status quo for over a decade now, though some market commentators say rates could have a reversion to the mean moment. But the macro environment is highly unpredictable, so how and when that happens is truly anybody’s guess.

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Real Assets

Visualizing the Power of Gold Versus Currencies

Over the last 40 years, the purchasing power of the world’s most popular currencies have declined against gold.

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Visualizing the Power of Gold Versus Currencies

The Power of Gold Versus Currencies

Since the gold standard was abandoned in 1971, the relationship in value between currencies and gold has moved in only one direction: down.

At that time, U.S. President Richard Nixon suspended the convertibility of the dollar into gold, effectively bringing the Bretton Woods system to an end.

Today’s visualization comes from the In Gold We Trust report, and it shows that over the last 40 years, the purchasing power of the world’s most popular currencies have declined significantly against the precious metal.

Turbulent Years

In the first decade after the gold standard was abandoned, the international monetary system was seriously shaken. Several U.S. recessions, coupled with international conflicts and high price inflation put the world’s reserve currency under enormous pressure.

During the 1973-74 oil crisis the price of gold rose 65%. In 1978, U.S. bonds had to be issued in the hard currencies of the Swiss franc and the German mark–the so-called Carter bonds.

The next decade saw the rehabilitation of the dollar through a highly restrictive monetary policy run by the Federal Reserve that led to sky-high interest rates. The trend continued with the fall of the communist Eastern Bloc in the early 1990s.

The Erosion of Purchasing Power is Accelerating

Gold is still the universal reserve asset to which central banks, investors, and private individuals return in times of crisis. Since 1971, the average annual growth rate of the metal price in U.S. dollars is just over 10%. Since the Euro was introduced in 1999, the gold price in EUR has risen by 356%, or on average 7.8% per year.

Unsurprisingly, over the last 40 years, the best performing G-10 currency was the Swiss franc, largely due to its close relationship with gold. The Swiss National Bank has one of the largest reserves worldwide.

CountryGold Reserve (Tonnes)
Value (US$ billions)
🇺🇸 United States8,133.46$493.6
🇩🇪 Germany3,362.45$204.1
🇮🇹 Italy2,451.84 $148.8
🇫🇷 France2,436.19$147.8
🇷🇺 Russia2,298.53$139.5
🇨🇳 China1,948.31$118.2
🇨🇭 Switzerland1,040.00$63.1
🇯🇵 Japan765.22$46.4
🇮🇳 India676.64$41.1
🇳🇱 Netherlands612.45$37.2

Despite significant corrections, gold was able to outperform virtually every other asset class and above all, every other currency between 2001 and 2019.

Gold breakout

Amid the turmoil brought about by Covid-19, investors again increased their exposure to gold. In August, the metal price surpassed $2,000 per ounce for the first time ever.

As political and economic tensions tend to endure over the next decades, so does gold’s role as an anchor during uncertain times.

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