World Gold Reserves: Top Countries, Repatriation, and Risk Mitigation

World Gold Reserves: Top Countries, Repatriation, and Risk Mitigation
After the subprime mortgage crisis and the Eurozone crisis, the importance of mitigating risk has become a prime concern for many nations. One of the growing risk factors is the increasing risk associated with the U.S. dollar – investor’s confidence in the dollar has been shaken by recent events such as the subprime crisis, the fall of Lehman brothers, and actions taken by President Trump.

Gold Reserves and its role in mitigating risk

In order to mitigate this risk, many nations have taken to increasing gold reserves to hedge against fluctuations of the dollar. Most notably, there have also been murmurs of concern about keeping gold bullion in the US, which is demonstrated by the growing effort among nations who have repatriated their gold from the US back onto their soil.

Gold reserves held abroad

In the past, nations held large gold reserves in times of war and moved large portions to the U.S. in event of invasion. Diversification of location meant that home invasion would not completely deplete the country’s treasury – as they would still have positions they can draw upon abroad. This mentality was especially practiced during the Cold War, where countries such as Germany and the Netherlands moved much of their gold holdings to the U.S., France, or the UK. Today, the risk of homeland invasion is no longer present and the growing Eurozone crisis makes it crucial to have a large gold reserve available at home in case of crisis, which has prompted a number of countries to start moving their gold reserves back home.

Gold reserve vs. foreign reserve

The easiest method to evaluate the importance a country places on a gold is through the size of their gold reserve compared to their total foreign reserve. Foreign reserves are assets held by the country’s central bank, which are used to back liabilities on the country’s own currency, influence monetary policy, and serve as a risk-mitigation factor. Typically, a country’s foreign reserve is composed of foreign government bonds and international currencies (US Dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound Sterling are the most common). Today, the definition of foreign reserve has been extended to include IMF Funds and precious metals as well. Some countries put significant emphasis on gold, which can be seen by the percentage gold consists of their foreign reserve.  The countries with the largest gold reserves are the following:

10. Netherlands

The Netherlands has a gold reserve of about 557.8 tons, which constitutes a huge 66.5% of their foreign reserve – meaning that the Dutch place enormous importance on gold over international government bonds or foreign currencies. In 2014, the Netherlands has begun repatriating some of its US gold positions, moving a total of 122.5 tons that calendar year.

9. Japan

Japan is the world’s third largest economy, but has a surprisingly small gold reserve compared to economies of its size. The country has a gold reserve of 765.2 tons, but the position is only 2.5% of their foreign reserve. Japan’s foreign reserve positions are mainly government bonds of from other countries.

8. Switzerland

Much like Japan, Switzerland is another country that doesn’t place heavy emphasis gold. The country maintains a gold reserve of 6%, or about 1040 tons. In 2014, Switzerland attempted a campaign to bring gold back to home soil, but the initiative did not receive enough votes to pass.

7. Russia

Russia is a country that has been growing their gold reserves steadily, and owns 1,715.8 tons of gold, equivalent to 17.1% of their foreign reserve. The country has been steadily increase its gold reserve position since 2007, and has more than quadrupled its position since 2007.

6. China

China is a bit of a black box when it comes to gold reserves. In 2015, the country released figures for its gold reserve for the first time in six years – 1,658 tons. In 2016, their gold reserve number is quoted to be 1,842 tons – but has not been updated in almost a year. Third party speculators such as  Koos Jansen of estimates China’s gold reserve may be as high as 20,000 tons.

5. France

France is the first entry on the list whose gold reserves constitute most of their foreign reserve. 64.9% of the country’s foreign reserve is in gold, about 2,435.9 tons. Much like the U.S., France also stores gold reserves on behalf of other countries, such as Germany.

4. Italy

Italy is an interesting entry on the list, as it holds a disproportionately large gold reserve in comparison to the country’s GDP.  Much like France, Italy puts enormous importance on gold, which can be seen in its 2,451.8 tons of gold, constituting 68.5% of its foreign reserve.

3. International Monetary Fund

Technically not a country, the IMF is an international organization consisting of 189 member countries with the goal of assisting the global economy by pushing for financial stability, growing international trade and improving the economy of member nations. The fund managed a total of $668 billion as of 2016, and its current gold reserve is 2,814 tons. Read more about their gold reserves here.

2. Germany

As world’s fourth largest economy, it makes sense for Germany to hedge its dollar currency risk, which it has done through its large gold reserve of 3.375.6 tons of gold – about 69.6% of its total foreign reserve. In 2013, Germany held 1,500 tons of gold in the US - the country begun a campaign to move gold back to Germany and has moved a total of 743 tons of gold as of August 2017.

1. United States

The world’s largest economy has a gold reserve that dwarfs other nations – the United States holds 8,133.5 tons gold, which constitutes the vast majority of the country’s foreign reserve at 75%. In addition, most of western Europe’s foreign gold reserves are held in the U.S but countries have begun the process of moving their gold reserves back to home soil.