Gold prices collapsed earlier this week one of the biggest selloffs on record — but some of the world’s central banks are still buying up large amounts of the precious metal. Specifically, the central banks of six countries are adding gold to their official foreign reserves, according to The World Gold Council’s most recent report on global central bank holdings. These six nations have purchased large amounts of gold so far in 2013 or throughout 2012. And if their buying continues, their gold demand could offset some of selling pressure (which has driven gold price to below $1,400) in the future. Some nations may indeed continue buying because of central bank or currency issues.
Of course, a major market concern is that Cyprus is now likely a gold reserve seller. The World Gold Council shows that Cyprus’s 2013 gold reserve is only 13.9 tonnes, which is 61.9% of the small nation’s total foreign reserves. Concerns about selling from Cyprus are compounded by worries that larger troubled nations, including Italy, Portugal and Spain, may start selling gold to either raise capital or because of the existing Central Bank Gold Agreement sale programs. However, it does not appear that there is panic selling among most of these nations, so that effect can be discounted for the time being.
The six nations that could offset or at least mitigate gold sales by other central banks, institutions and individuals are Russia, Turkey, South Korea, Brazil, Kazakhstan and Iraq. In its analysis, 24/7 Wall St. has avoided specific speculation on why these nations may be acquiring gold because the reasons may differ from country to country.
It is worth noting is that the World Gold Council report evaluates central bank holdings and does not include investor and industrial demand in any of the countries. As recently as February, the World Gold Council showed that global central banks had bought the most gold since 1964. But India and China were no longer the demand mechanisms they had been in the past.
Many of the official central banks’ gold holdings of large nations, based on gross domestic product (GDP), are nearly the same as they were in 24/7 Wall St.’s last report: The 13 Countries That Own the World’s Gold. But if that changes and some of the troubled nations actually sell gold as a source of funds, then it be beyond the scope of retail investors and speculators to help keep gold price at even the current depressed levels.
Here are nations with largest gold reserves as measured by tonnes. This list includes the International Monetary Fund and the European Central Bank.
- The United States (#1) was static at 8,133.5 tonnes
- Germany (#2) was down slightly at 3,391.3 tonnes (April 2013), versus 3,401.8 tonnes in late 2011
- The International Monetary Fund (#3) was static at 2,814 tonnes
- Italy (#4) was static at 2,451.8 tonnes
- France (#5) was static at 2,435.4 tonnes
- China (#6) was static at 1,054.1 tonnes
- Switzerland (#7) was static at 1,040.1 tonnes
- Russia (#8) increased reserves from 851.5 tonnes in late 2011 to 976.9 tonnes (April 2013)
- Japan (#9) was static at 765.2 tonnes
- The Netherlands (#10) was static at 612.5 tonnes
- India (#11) was static at 557.7 tonnes
- The European Central Bank (#12) was static at 502.1 tonnes
- Taiwan (#13) was static at 423.6 tonnes
- Portugal (#14) was static at 382.5 tonnes
24/7 Wall St. has analyzed the World Gold Council data and added comments on how and why the central banks of Russia, Turkey, South Korea, Brazil, Kazakhstan and Iraq could act as the stabilizing mechanisms for gold if selling pressure continues. If history is a measure, it seems highly unlikely that retail buyers and speculators will start another wave of gold purchases. Central banks buy gold in support of their currencies, and the recent massive drop may give the central banks that can a chance to increase their gold holdings.
GDP and population estimates were both taken from the CIA World Factbook.
Russia > GDP: $2.5 trillion > Population: 142.5 million
Russia now ranks as number eight among the nations with central bank gold ownership, up at 976.9 tonnes at the April 2013 report, versus 851.5 tonnes in late 2011. It kept increasing reserves through 2012, predominantly through purchases of gold in the domestic market. In the first two months of 2013, it bought another 19.2 tonnes, which means that if the pace of buying remains the same, Russia will cross the 1,000 tonnes mark by May. With gold production of its own, and the desire of Russia to continue adding to its influence and power as a financial center, it should be expected that central bank buying will continue regardless of the price swings in gold.
Turkey > GDP: $1.125 trillion > Population: 80.69 million
Turkey is fairly new to the list of the top nations holding gold. However, its serious accumulation of gold has accelerated because of banking regulation changes. It is now ranked 15 on the list of nations and governmental agencies owning gold. Stockpiles are being added to Turkey’s balance sheet as a result of a new policy accepting gold in its reserve requirements from commercial banks. Turkey’s gold now accounts for 15.6% of its total foreign reserves. The gold buying may continue ahead, although the price drop might cause banks to take a reserve loss. Turkey makes banks count the attrition because gold has been mandated. Turkey now holds of 375.7 tonnes, after adding 16 tonnes so far in the first two months of 2013, and that is after adding a net 164.5 tonnes or so in 2012.
South Korea > GDP: $1.61 trillion > Population: 48.95 million
South Korea, which ranks at number 34 today on the list of nations with central bank gold holdings, has 104.4 tonnes of gold. However, its central bank holdings have increased gold reserves by 20 tonnes. The country made two large purchases in 2012, one of 14 tonnes and one of 16 tonnes. This is still only 1.6% of the central bank’s reserves. It is possible the escalation of North Korean rhetoric might have something to do with South Korea adding gold, now and in the future.
Brazil > GDP: $2.36 trillion > Population: 201 million
Brazil also moved up the World Gold Council list to number 41, with 67.2 tonnes. However, this is only 0.9% of all reserves in its central bank. There were no real changes so far in 2013 in Brazil’s central bank gold holdings. The large additions were made in late 2012, when the central bank added some 33.6 tonnes to its holdings. For some time, Brazil has needed to back its currency with more gold. The country has one of the great promising economies of in term of future expansion, yet the Brazilian real is backed by a relatively small amount of gold.
Kazakhstan > GDP: $231.3 billion > Population: 17.73 million
Kazakhstan may be a major economy, yet the World Gold Council continues to show that the nation is adding gold reserves to the central bank. It now ranks number 30 among central banks that own gold, with 121.7 tonnes. This is also listed as 23.3% of its total reserves. Through purchases and swaps, it has added 6.4 tonnes in the first two months of 2013. The total added for all of 2012 tallied to 33.1 tonnes.
Iraq > GDP: $155.4 billion > Population: 31.8 million
Iraq is very unlikely to put in a floor under international gold selling, but the World Gold Council showed that the nation ranked as number 54, with 29.8 tonnes. This is only 2.4% of its total foreign reserves, but one fact stood out in 2012 — it added 23.9 tonnes in August. As Iraq continues to get on with its recovery, more hard assets like gold may need to be purchased by its central bank to show additional stability for the reemerging nation.