Central Bank Gold Holdings
Monday, 8/12/2024 12:30
The top 3 buying gold, the reasons why, world data table...
DEMAND to buy gold among central banks is a key part of the bullion market.
Over the past 10 years, central banks as a group have bought 1 in every 8 ounces produced by global gold mining. Their demand outweighed inflows to gold-backed ETF investment products more than 3 times over.
In fact, the total quantity of gold now reported to be held in national central-bank reserves – shown on BullionVault's interactive data table below – today accounts for 15% of all the gold ever mined in all of history.
Which countries are buying the most gold for their reserves?
Russia and China together account for more than 80% of the net central-bank gold demand reported to the International Monetary Fund since 2004. But looking at just the last 3 years, their proportion of the worldwide total falls to barely 30%. That's because, while
China continued to buy gold for 18 months non-stop up to May 2024, Russia stopped and even reported some small sales amid the Western sanctions over its invasion of Ukraine.
Demand has meanwhile deepened among several other, smaller buyers led most dramatically by Poland and Turkey – both members of the US-led Nato military alliance – plus developed-economy state Singapore.
Why do central banks buy and hold so much gold?
"Gold," says a research paper co-written by monetary historian Barry Eichengreen in 2023 and published by the IMF, "appeals to central-bank reserve managers as a safe haven in periods of economic, financial and geopolitical volatility."
Because those stresses have worsened so far in the 21st Century, gold's appeal has only grown for many central-bank buyers, as you can see on this interactive table (click the column headings to sort the table).
Overall, the total quantity of gold held in national central-bank reserves has increased almost 19% by weight since summer summer2004 – and it has jumped 7-fold in US Dollar value to $2.4 trillion – led by Russia, China, India and Turkey.
Note: These numbers are built from the International Financial Statistics (IFS) reported by national central banks to the IMF for end-June 2024. Not all central banks make regular reports, and BullionVault's table of central-bank gold buying does not include any estimates for 'unreported' purchases (or sales). But it does, where possible, include updates where a central bank has made public statements about its gold reserves which it didn't report to the IMF or which the IMF hasn't published.
Despite the overall growth in central-bank gold reserves, more than 1-in-5 (23%) of the countries covered in this table didn't hold any gold at any point over the past 20 years.
More notably, almost one-in-three of the other 126 (30%) owned less gold in summer 2024 than they did 20 years ago. Just over 1/3rd of those sellers are rich-world nations, leaving only 4 advanced economies who have actively chosen to buy gold and grow their bullion reserves since 2004 (Ireland, Japan, Korea, Singapore).
So there's been a big split, in other words, between rich-world and emerging-market nations.
Who is buying the most gold among central banks and why?
#3. India
For a country with such a deep and famous love for gold, India began the 21st Century very shy about buying any gold for its central-bank reserves. But looking to diversify its foreign-exchange reserves as economic growth in the world's most populous nation accelerated, the Reserve Bank of India in late 2009 bought a massive 200 tonnes of gold from the International Monetary Fund.
India's 2009 gold purchase was the largest increase in its national gold holdings on record. It cost the central bank $1045 per Troy ounce, then the highest gold price ever. The very same level then became the final floor for the gold prices when the market slumped in 2012-2015. Perhaps that proves – as several analysts had noted – that the staff at India's central bank "really do
know a thing or two about gold."
After the 2009 purchase of IMF gold, the RBI kept its record-large gold reserves unchanged for 8 years, focusing instead on trying to boost the Rupee's exchange-rate value while building its holdings of US Dollars and other foreign currencies. Indeed, there was discussion about
selling or lending some of India's gold to help the central bank defend the Rupee, something it had done two decades earlier.
But the officials in Mumbai then began to buy gold regularly from the end of 2017, adding more than 264 tonnes since then to take the Reserve Bank of India's total reported bullion reserves to the 9th largest worldwide among national central banks. Over 15% of the total has been added in the past 3 years alone, as our table shows.
What's more, India has recently joined another key central-bank gold trend – repatriating some of its gold reserves from abroad, and keeping more of its bullion at home.
More on this geopolitical trend and the reasons behind it below.
#2. China
The 7th largest economy in US Dollar terms in 1999, China jumped to 3rd place on the GDP league table within 10 years and then overtook Japan, closing the gap with world No.1 economy the USA to less than 50% in 2013 and then below 30% in 2023.
Driving that economic growth, China has built a giant manufacturing sector and earns a huge trade surplus against the rest of the world. Today it ships out over 14% of all merchandise exports by value, but it buys less than 11% of global imports. To pay for the gap, other countries – led by the USA – must send huge quantities of currency to China to get the goods that they want. That has enabled the central bank in Beijing to build massive reserves of foreign currency and bonds, led by the US Dollar.
China's FX reserves at the People's Bank are so huge, its massive gold holdings still accounted for just 4.9% of the total in US Dollar terms in summer 2024. But that ratio has doubled over the last 20 years as Beijing more than tripled the weight of its gold bullion reserves to reach more than 2,260 tonnes on the official data.
That makes China the 6th largest national gold holder, with analysts believing that the vast bulk if not all of its gold is stored domestically. But do those figures understate China's true bullion reserves?
Many analysts believe China's national gold bullion holdings are larger than the reported total, perhaps twice the size if you compare the country's visible private-sector demand against its gold mining output and bullion imports. The excess supply must have gone somewhere, and the People's Bank has in the past kept the changes in its gold holdings a secret,
suddenly announcing huge increases in its gold reserves in 2009 and then 2015.
#1. Russia
As with China, the Central Bank of Russia is believed to keep all its gold bullion domestically, rather than holding much if any abroad.
Also like China, there's debate over the true size of Russia's government gold holdings. But on the central bank's official data, Moscow now holds the world's 5th largest national gold hoard after choosing to buy almost 2,000 tonnes for its reserves over the last 20 years.
That gold-buying spree took off as the price of oil and gas – which make up half of Russia's total exports and account for almost 1/5th of its entire economic output – began rising in the 'commodity supercycle' of the early 2000s. Boosting Russia's GDP as well as Moscow's tax revenues, the country's trade surplus with the rest of the world also spurred a jump in the central bank's reserves of foreign currency, most of all the US Dollar.
At the same time, Vladmir Putin – then as now President of Russia – called for the Central Bank of Russia (CBR) to increase gold's share in its foreign-exchange reserves, and he also called for greater investment into Russia's gold-mining industry. The country has since moved from 5th position to No.2 among the largest producer nations, almost doubling its annual gold mine output by weight.
As a major supplier to the global bullion market, Russia's gold miners hit a big problem when Western sanctions hit the country's banking sector after its invasion and annexation of Ukraine's Crimea region in 2014. Those US and EU sanctions meant Russia's gold miners couldn't easily access the international market to sell their output. So after reporting no sales and only purchases between 2007 and 2012, the Central Bank of Russia accelerated its
relentless campaign of gold buying in 2014-2018, paying domestic mining companies with Rubles to buy 80% of their output.
Russia's huge gold accumulation means that it accounted for more than 40% of all national central-bank gold buying worldwide since 2004. But Moscow's dominance has slipped, falling to 30% of the sector's net demand over the last 10 years and then dropping to less than 9% since summer 2019. Indeed, it slowed to just 5% of global central-bank gold buying over the last 3 years.
First, that's because other countries began buying gold during the Western financial crisis of the late 2000s. Russia's accumulation then slowed because of the 2020 Covid Crisis, when the plunging price of crude oil hit Moscow's tax revenues and forced the Ruble's foreign exchange rate lower. Thirdly, Moscow's war on Ukraine then hit the Russian state's finances and international liquidity reserves as the US, UK and EU authorities have tried to lock it out of the global financial system.
The CBR initially said it
wouldn't buy any domestic gold output, but it relented as Western sanctions hit both Russia's mining industry and its own ability to grow its reserves of non-Ruble assets.
What about the top 4 gold-owning central banks?
Despite that massive 21st Century gold buying by Russia, China and India, today's biggest holders are still the USA, Germany, Italy and France. Indeed, rich-world 'legacy' owners – who built their reserves either during the global gold standard of the early 20th Century or during its replacement, the Bretton Woods system, which ran between WW2 and the oil crises of the 1970s – make up half of the top 20 countries.
The Washington-based IMF and the European Central Bank also continue to keep massive quantities of gold in their reserves. Why?
"First, security," as a French central-bank policymaker said in a speech back in the year 2000. That's because physical
gold bullion is free from anyone else's control or financial risk.
"Second, liquidity. [Gold's trading volume] becomes apparent and increases as uncertainty grows" in other financial markets.
Third, and because of how the first 2 reasons combine,
gold offers "diversification" to central-bank investment portfolios. "Contrary to most other assets, gold prices go up when things go wrong."
On top of these timeless reasons to buy gold, a 4th factor has recently come into play for some emerging-market central banks: Financial sanctions, led by the USA.
These sanctions, imposed by Washington and its allies in Europe, Australia, Canada and Japan, aim to restrict and hurt countries like Russia, Iran and North Korea in protest at their support for terrorism and poor human rights. Other countries, fearing such sanctions, could also find buying gold useful, because "Gold is different from other reserve assets," explains monetary historian Barry Eichengreen, "in that it can be repatriated and thereby insulated from an executive order of the US president and [similar] action by other governments."
This trend of 'gold repatriation' becomes clear when you compare how much metal is being cared for in
the Bank of England's gold vaults – a massive and active storehouse for other central banks to keep gold ready for sale in the world's central trading hub – against the global total for reported reserves. BoE custody holdings have shrunk by 465 tonnes over the past 3 years, but central banks as a group have grown their bullion reserves by 1,160 tonnes on the official data, and very likely by more than that in reality. That shows the shift away from entrusting 'safe haven' gold to the United States' key European ally, with today's biggest buyers wanting to keep their bullion close-to-hand and beyond the reach of US sanctions.
Bottom line? The United States and its allies in Europe and Japan have increasingly imposed financial sanctions on smaller, emerging-market economies over the last decade to try policing the world as Washington would wish. Buying gold, on top of its role as investment insurance, looks increasingly like a political rebuke to that US-led world order.
