Gold reserves: The gold of the central banks

Gold reserves © courtesy of the OeNB

Currently, one reads again and again in the media about the 2300 tons of gold that Russia or the Russian central bank holds as a national gold reserve and whether and how this could help Putin in the course of the Ukraine war and the sanctions.

But what is actually the point of gold reserves and should you also invest one?

Why do states hold gold at all?

Physical gold is held by countries primarily as a currency reserve. As a rule, the sovereignty of the gold holdings of individual countries lies with the central or central banks. The share of gold in the currency reserves of many countries has declined since the end of the gold standard.

Most of the currency reserves are therefore held in foreign currency (mostly dollars). The idea is to be able to protect one's own currency from a loss in value in the event of a crisis. The central bank then exchanges its own currency for gold (or foreign currency), thus creating demand and supporting the exchange rate.

The gold bars held by central banks as currency reserves are so-called Good Delivery Barswhich must meet certain quality requirements defined by the London Bullion Market Association (LBMA). As a rule, these gold bars have a unit of 400oz. Weighing just under 12.5kg, these gold bars are 25 x 7 x 4 centimeters in size, and correspond exactly to the image of a bar as many know it from the cinema.

2300 tons of gold: Russian gold reserves

Until 2007, the Russian central bank had gold reserves of only about 400 tons of gold, according to the World Gold Council. In recent years, however, the central bank has made substantial gold purchases, increasing Russia's gold hoard to nearly 2,300 tons. At the current gold price, the value is around 140 billion dollars.

As an official reason for the purchase, Russia stated that it wanted to become less dependent on foreign exchange, such as the dollar and the euro. In fact, gold reserves probably account for about 23% of Russian foreign currency. This is high compared to other countries. However, it is not enough to pay all liabilities with it. This is because most of the foreign exchange reserves in dollars and euros are currently frozen in the wake of the sanctions.

The problem for Russia is that it currently has difficulty selling gold.

Because of the international sanctions Russian organizations and also gold producers can hardly trade gold outside Russia anymore.

British, EU and US institutions are not allowed to do business with the Russian central bank. Russian gold is thus excluded from trading on the important wholesale markets. This leaves only China and India as potential trading partners.

In an emergency, the Russian central bank could introduce a gold standard for the ruble to support the domestic currency. The problem, however, would be that this would make it more difficult for Russia to finance the war. This is because it would then no longer be possible to reprint rubles.

The largest gold reserves: the countries with the most gold

With about 2300 tons of gold, Russia is the state with the fifth largest gold reserves in the world.

This list is headed by the USA. The Americans store a total of more than 8133 tons in their vaults. Most of it is in the famous United States Bullion Depository in Fort Knox. Another part of it - together with gold reserves of numerous other countries - is in the Federal Reserve Bank of New York in Manhattan.

Already well behind in second place is Germany with 3359 tons of gold, ahead of Italy (2451 tons) and France (2436 tons).

Austria's gold reserves currently amount to 280 tons, half of which are held in Austria. Approximately 90 tons are held by the Austrian National Bank, 50 tons in the vaults of the Austrian Mint.

The other half of Austria's gold is stored in the United Kingdom (84 tons) and Switzerland (56 tons), where the world's most important trading centers for physical gold are also located.

In addition to states, other organizations, such as the International Monetary Fund, also hold significant gold reserves. The IMF currently (2022) holds around 2814 tons of gold.

Create your own gold reserve

Phyic gold as an emergency reserve

While central banks use gold to protect their currency against loss of value, private individuals should also think about the stable value of their own assets. In times of high inflation - which is currently higher than it has been for decades - money loses value every day.

Gold is an excellent way to protect saved assets against inflation and is a proven form of "economic self-defense" against the ongoing devaluation of your money.

We therefore advise our customers to invest about 10-20% of their assets in gold, silver, platinum and other precious metals. Not to speculate with, but as a hedge against inflation and currency devaluation.

This is because precious metals make it easy to hedge even smaller assets (not everyone can afford real estate), and it is easy to transport and store.

With an investment in gold and other precious metals you are in any case always on the safe side! Due to its limited availability, gold has been a lasting value for many centuries. You can rely on that!

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