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The Bullion Report

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March 30, 2011 in 'The Bullion Report'

Who Has GoldWho Has Gold

News outlets have been all abuzz with the gold acquisitions of countries like China and Iran, and speculation over the size of Libya’s gold reserves. The potential motivation for buying gold, as well as the possibilities over what to spend it on, fuel stories that range on hot button topics. Is the US dollar so weak that oil producing nations are moving to precious metals as currencies? Will the availability of gold prolong the crisis in Libya and give Gaddafi a lifeline? Moreover, who else has gold in significant quantities?


Past performance is not indicative of future results.

***chart courtesy of Gecko Software

The global recession appears to have brought another round of exploration of gold as an alternative asset, however, the official purchases of gold for central bank reserves have remained somewhat muted. The idea behind a limited gold holding is that other assets are a better investment, offering interest payments over time. To put it blandly, gold holdings take up space, are clumsy and awkward to hold and move easily, and don’t offer interest payments. Creative ideas like leasing gold may offer some returns, but usually not at the rate some banks are pursuing.

So which countries were holding the most metric tons of gold heading into the close of 2010? According to the World Gold Council, the United States led the pack with over 8,100 tons. Germany came in with over 3,401 tons. The rest of the notable holdings are shown in the following chart:


Gold (metric tons)*

Q4 2010

United States

8133.5

Germany

3401.0

IMF

2814.0

Italy

2451.8

France

2435.4

China 1)

1054.1

Switzerland

1040.1

Russia

788.6

Japan

765.2

Netherlands

612.5

India

557.7

ECB

501.4

Taiwan

423.6

Portugal

382.5

Venezuela

365.8

Saudi Arabia 2)

322.9

United Kingdom

310.3

Lebanon

286.8

Spain

281.6

Austria

280.0

Belgium

227.5

Algeria

173.6

Philippines

154.1

BIS 3)

500.7

 

Prior to the civil rebellion, Libya was holding a reported 143.8 tons of the shiny stuff. And the trick with gold holdings is that they cannot be seized or frozen by foreign entities. If they could be sold, the Financial Times is estimating that the gold holdings in Libya could fetch over $6 billion, and pay a private army or mercenaries for “months or even years.” Unlike other central banks that may hold their gold in international vaults in New York, London, or Switzerland, the bullion of Libya is reportedly in country, and available to the embattled leader. The other boon seen for Gaddafi is the same that other investors strive for – gold’s value cannot be set by other governments, and its appeal is universal. Of course, like other investors, moving nearly 150 tons of gold would not be an easy task. If the International Monetary Fund reports on transactions as small as 10 tons, can someone quietly buy upwards of $6 billion worth of gold without anyone noticing?

If nothing else, current unrest and persistent economic troubles have highlighted the opportunities in precious metals as asset preservation, in times of uncertainty as well as potential inflationary hedges. The latter is sought when it appears that central banks are pushing the envelope with stimulus programs. Iran is another news focus, allegedly adding to their gold reserves in an effort to protect their holdings and shift financial assets away from the US dollar. Unfortunately, the same table from the IMF doesn’t show Iran’s holdings. The basis for many news stories about these transactions appears to be from a Bank of England official and a note on Wikileaks.

Iran would not be alone in increasing holdings, potentially as a movement of assets away from the US dollar. Since the first part of the year 2000, several nations have added to their coffers rather than emptying them. Russia has added 366 tons. India picked up 200. China loaded up on 659 additional tons. Saudi Arabia squeezed in 180 more. Switzerland, France, IMF, and the Netherlands were among the ones shedding tonnage over the last decade.

Summary

Besides central banks, ETFs and other investment holdings have increased since the onset of the financial crisis in 2008. So potentially Gaddafi, Iran, China, Russia, and other countries are feeling the same thing that other investors are. Gold can be a good idea to add to your holdings when things get shaky. Precious metals appear to be an even better idea when things get messy. Governments can’t manipulate them. Central banks can’t add more at will. And if fiat currencies continue to weaken or you are placed in a situation where a universal currency is required, gold seems to fit the potential bill. It isn’t unusual then to see that a variety of buyers exist for gold.

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Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.