Top 10 Countries With Most Gold Reserves | Why Are Central Banks Buying Gold?

It was around 2000 BC that the Egyptians began actively mining gold for the first time. Since then, 4,000 years have passed, and with each turn of the century, mining technology has become more advanced.

As you can imagine, by now there should be a lot of gold reserves scattered across the globe, and you would be right. There are approximately 190,040 metric tons of gold in the world as of 2019.

The sheer value of all this gold is staggering, and everyone wants a piece of the pie. However, the question is who owns all this gold? The answer might surprise you because a huge chunk of these gold reserves is owned by just 10 of the 195 countries in the world!

These countries with the largest gold reserves have been stockpiling the precious metal for years, sometimes even decades. By now their reserves are worth ridiculous amounts yet still, their central banks are buying more gold!

In this article, we shall take an in-depth analysis of why central banks are buying gold, how to determine the allocation of the world’s largest gold reserves, and, finally, who these 10 countries with the largest gold reserves are. Read on for more!

How Gold Reserves in Central Banks Work

Gold, in one form or another, has served as the primary means of conducting financial transactions ever since the first gold coins were minted by King Croesus of Lydia in 550 BC in what is now present-day Turkey.

Even now, much of the value of the world’s paper currencies are based on the value of gold, or as it is more popularly known, the gold standard. This is why central banks need to have strong gold reserves for political and economic reasons.

While it is not a requirement that the entire value of a currency is backed by gold reserves, central banks, such as Hungary’s Central Bank keep huge piles of gold as a hedge against hyperinflation or some other economic problem.

Central banks are therefore always on the lookout for new sources of gold, and annually, many governments increase their gold reserves by hundreds of tons.

Who Keeps Track of the Largest Gold Reserves?

One of the major authorities responsible for overseeing all activities regarding gold mining, trading, and stockpiling is the World Gold Council. They are in charge of keeping an eye on the amount of gold purchased by central banks as well as requesting each country to declare the size of its gold reserve.

However, this is easier said than done due to the strong link between a country’s gold holdings and its political influence. Independent bodies often come up with gold reserve figures that are different by as much as 20% from those of the World gold council.

I0 Countries With the Largest Gold Reserves

Let us, for a moment, assume that the figures supplied by the World Gold Council are representative of the actual gold reserves a country has. On that basis, in ascending order, the countries with the largest gold reserves in the world are:

10. Netherlands

Tons: 612.5

Amount held in foreign reserves: 67.4%

The majority of Dutch gold reserves have been historically kept in foreign reserves. Most of the gold holdings that were kept inside the country were secured at the Dutch Central Bank in Amsterdam.

According to the country, these local gold reserves will now be moved to a new location in Camp New Amsterdam. This is widely seen as an unusual move by the Dutch Central Bank because it only recently brought back a large amount of its gold which was kept by the Federal Reserve Bank in New York.

9. India

Tons: 687.8

Amount held in foreign reserves: 6.5%

India is the world’s second-largest consumer of gold, so it comes as no surprise that the South Asian country makes it onto this list. the Central Bank of India currently holds 687, 8 tons of gold in its vaults.

India’s tradition has a very strong link to gold. It is used during the wedding season when it is presented to both the bride and groom as wedding presents. Considering that the country has more than 1.2 billion people, those are a lot of potential weddings!

This is why from October to December, the country’s festival and wedding season, no other country except China can rival India in terms of gold demand.

8. Japan

Tons: 765.2

Amount held in foreign reserves: 3.1%

Even though it is a very small country by land mass, Japan is the world’s third-largest economy. Therefore it is no surprise that the country has the resources to buy as much gold as it wants. The Japanese Central Bank has even been making moves to lower interest rates since 2016, a decision that has seen the demand for gold skyrocket within the country.

7. Switzerland

Tons: 1,040.0

Amount held in foreign reserves: 5.4%

Switzerland is famous for its solid financial institutes, a reputation that dates back to World War II when the country became Europe’s center for gold trade. The Swiss’ neutrality allowed them to trade with both the allies and the central powers, and in the process, the country made huge profits.

6. China

Tons: 1,948.3

Amount held in foreign reserves: 3.3%

In an unprecedented move, the People’s Bank of China began sharing its gold activities with the world in 2015. It already has a huge stockpile of the precious metal, with only 3.3% being kept in foreign reserves.

However, even with 1,948.3 tones already secured, it’s not enough to support prices within the country or to supply the growing demand. This is why China is now allowing international and domestic banks to import large amounts of gold into the country.

5. Russia

Tons: 2,295.4

Amount held in foreign reserves: 22.0%

In the past seven years, Russia has become the largest buyer of gold in the world, even surpassing China in 2018. Considering that the Russians are already the second-largest miners of the yellow metal, it is safe to say the country is on a drive to shore up its gold reserves at all costs.

However, recently, the Russian invasion of Ukraine has put a dampener on the country’s gold trading efforts as Western countries have now placed sanctions on Russia.

4. France

Tons: 2,436.0

Amount held in foreign reserves: 64.5%

Even though France has not been actively buying a lot of gold on the open market, it has also not sold a lot of it over the past few years. The result is that the country’s gold reserves have remained very stable. 64.5% of the French people’s gold is stored in foreign reserves, with most of the remainder being kept beneath their Central Bank in Paris.

3. Italy

Tons: 2,451.8

Amount held in foreign reserves: 69.3%

One of the most interesting facts about Italy’s gold reserves is that it is not owned by the government but by the Italian Central Bank. The country has vowed not to sell any of its gold reserves because it considers gold to be a safety net against any instability in the global economy.

As a result, even in the face of economic hardships, the Italian government has resorted to other measures to boost its economy rather than sell its gold.

2. Germany

Tons: 3,362.4

Amount held in foreign reserves: 74.5%

Germany is the world’s second-largest hoarder of gold, with almost 75% of its total gold holdings being held in foreign reserves. This is because, during the cold war, the Germans feared that the Russians might get hold of their gold, so as a safety measure, much of it was shipped overseas.

To this day, most of Germany’s gold is held by the Federal reserve bank in New York and by the Bank of England in the UK.

1. United States of America

Tons: 8,133.5

Amount held in foreign reserves: 77.5%

Right at the top of the list is the United States of America, the world’s largest holder of gold reserves. The larger part of their gold reserves is held in foreign reserves, while the remainder is stored in the world-famous vaults at Fort Knox in Kentucky.

Are These Figures for Gold Holdings Accurate?

The accuracy of the findings from the World Gold Council has long since been the subject of a lot of debate, with many claiming that the actual identities of the countries with the largest gold reserves in their central banks are not the ones we may think of.

Of course, such claims are very difficult to prove given how closely central banks guard their countries’ financial secrets. However there may be a lot of truth behind those claims, and here is why:

Countries With the Largest Gold Reserves Keep Them Secret

You will be hard-pressed to find even a single Federal Reserve Bank or Central Bank that will be quick to disclose the true value of its gold reserves.

A lot depends on the image a country portrays in terms of its assets and liquidity, which is why central banks are very secretive for the following reasons:

political reasons

Gold’s inverse relationship with inflation and the overall state of the world’s economies means that it can be used as a political tool by countries that control it.

This makes central banks very reluctant to share the actual figures of their gold reserves unless some form of political advantage can be gained from doing so.

In many cases, countries with the largest gold reserves tend to downplay the number of gold reserves that they have lest it put them at a disadvantage during political negotiations.

Boosting Trade

Boosting Trade

When a country’s currency is highly dependent on trading with other countries, as is the case with traditional economic powerhouses Japan and China, it helps to keep the currency slightly weaker than the countries you intend to export to.

Since gold reserves have a big role in the strength of a national currency, such information may be kept a secret to give the impression of economic weakness when the opposite is true.

ill-gotten precious metals

Gold represents one of the biggest sources of international conflict in the world. Any third-world country that exports gold in large amounts usually has to deal with a lot of political unrest and civil strife.

In most cases, the World Gold Council will not allow countries to buy gold from these regions of the world until the political climate is resolved. However, the high gold demand usually means that countries find a way to buy gold from these regions anyway, which they will then keep secret.

International monetary fund

A lot of the central banks of third-world countries rely on monetary aid in one form or another from organizations such as the International Monetary Fund.

However, this aid is usually meant to boost their struggling economies, so if these countries happen to have large gold reserves, they will not disclose it in a bid to keep the funds coming.

Gold Owned by Private Entities

Private gold investors have a huge impact on the total amount of gold in a country because, at times, the exact size of their gold reserves is unknown and difficult to ascertain. The gold held in private hands is not always legally obtained, nor is it readily declared for tax purposes.

Gold From Artisanal Miners

Artisanal miners make up a huge percentage of the total gold that is mined within a country, especially in Africa, Asia, and South America.

These small mining entities are notorious for their poor record keeping and for selling gold on the black market. As a result, one can never know for sure how much of this gold will end up in another country’s central bank.

Gold Kept in Foreign Reserves

Not all the gold a country owns is kept in one place, or even within the same country for security reasons. A large amount of a country’s gold reserves is kept for them by the central banks of other countries.

An excellent example is the Federal Reserve Bank in New York, which keeps the gold holdings of many other countries, such as Germany and France. Some of this gold in foreign reserves is not easy to track down and account for in its entirety.

China Might Have More Gold Reserves Than We Think!

China has long been suspected of having the highest gold allocation of any country in the world. Considering the number of foreign mines that are partly owned by Chinese nationals all over the world, it is easy to see why this may be true.

Today, China is the biggest producer of gold in the world, accounting for at least 12% of the industry. This is why it is surprising to see the country sitting in the sixth position when it should, in reality, be competing with the US for first place.

However, when we look at how China’s economy is structured, it is easy to understand why the Chinese would be so desperate to keep the true size of their gold reserve a secret.

China is the world’s largest exporter of manufactured goods and as such, it benefits the Chinese to keep the country’s currency as weak as possible compared to its international customers.

Declaring the actual size of its gold holdings would derail that myth, hence its Central Bank is very tight-lipped about the amount of gold and other precious metals in its coffers. That is why, for the time being, the total foreign reserves and local gold holdings owned by China are unknown.

Could Our Gold Reserves Dry Up?

Yes, gold is a finite physical commodity, meaning that one day we could very well run out of this precious metal. How this will impact the world economy and money supply is yet to be seen.

However, for the time being, gold is still being mined in huge quantities in places such as South Africa and Russia. These two countries combined account for almost 90% of the world’s supply of this yellow metal.

It is unclear exactly when the world’s natural gold reserves will dry up because the largest gold reserves may be, as yet, undiscovered.

The Time To Invest in Gold Is Now!

Whether or not gold reserves dry up in the future, the yellow metal remains the best “safe-haven asset” that you could ever wish for.

Immune to market volatility, inflation concerns, rising interest rates, and other underlying economic issues, gold is the best investment option for anyone right now.

It’s not for nothing that people generally talk about the gold standard. Gold is a tried and tested means to hedge your funds from inflation and secure your financial future.

Even if the natural gold reserves do run out of the commodity one day, you can rest assured that will only serve to increase the value of gold many times over.

Final Word

Whether or not China does have more gold than even the US is something we may never know. However, for the time being, the honor of being the country with the largest gold reserves in the world belongs to the United States of America.

James McCollum
About the author

James founded an investment club in the Northeast before many of the members started retiring and moving South. Along with his fellow investing enthusiasts, he continues to provide market commentary at Investors Circle.