Gold is increasingly being spoken about as some kind of new global phenomenon, which is going to shift the global economic structure and redistribute the power of the world. Gold, as you are probably aware, is not new, but there is an almighty shift just around the corner and this is why it has taken centre stage once more.
The whole story is complex; there is money and gold and oil and competing nations, and somewhere along the line, gold has re-emerged as a central part of the paradigm.
Put simply, the dollar was connected with gold, then the US people spent too much money (on war and consumption) and released their currency from the precious metal, in order to maintain such spending and growth. For the purpose of maintaining demand and thus halting inflation, they then connected it to oil, through the petrodollar system, and thus continued to thrive. As other nations have become richer, however, the dollar has begun to collapse in on itself, and now several nations are set about destroying the petrodollar system by trading oil directly with gold, thus bypassing the dollar and ultimately kick starting hyper inflation. Fundamentally, gold is now beginning to be trusted ahead of any currency.
So, what does this mean in terms of global power? As the old saying goes, money is power, but with increasing faith being placed in gold ahead of currency, the precious yellow metal is now becoming of a key component of state finance. This has resulted in a number of central banks recalling their gold from overseas – most famously, Germany – and numerous others building up the percentage of their state gold reserves.
Today, we are going to look at what this means, by investigating the top five gold hoarders in the world.
1. United States
- Gold reserves: 8,133.5 tonnes
- Percentage of total foreign reserves: 75.4%
- GDP: $15 trillion in GDP (the largest)
- Stock performance: S&P 500 up 5.7% in Q3, up 14.5% YTD
Despite the desperate state of the dollar, the US still boasts the world’s biggest gold reserves, with over 8000 tonnes. This is no surprise really, what with the dollar being the global reserve currency and with the States leading the way, with regards to GDP too. There are, however, some rumours that this stated quantity of gold does not exist in actual form; a situation that if proved true would have dire consequences for the US currency. If, however, the gold is there, then such an extensive reserve should maintain the dollar as the global reserve currency for many years to come.
- Gold reserves: 3,395.5 tonnes
- Percentage of total foreign reserves: 72.4% of foreign reserves
- GDP: $3.6 trillion (4th largest)
- Stock performance: DAX rose 12.4% in Q3, up 22.3% YTD
As the central pillar of the euro, it probably also comes as no surprise that Germany is second on the list. Despite having only the world’s 16th largest population, it has the 4th largest GDP and imagine what would happen if they were to sell off some of their extensive gold reserves. The risk, in this regard, however, would of course be inflation, without the presence of hard assets as a cushion. Germany recently requested the return of their gold back, predominantly, from US stores; a move, which added further fuel to the conspiracy theories floating around. Indeed, there is no benefit to gain from the repatriation of their gold, except security and defence against potential confiscation.
- Gold reserves: 2,451.8 tonnes
- Percentage of total foreign reserves: 72%
- GDP: $2.2 trillion (8th largest)
- Stock performance: Borsa Italiana MIB rose 5.7% in Q3, flat YTD
Italy is perhaps rather surprisingly up at third place, with almost two and a half thousand tonnes of gold in reserves. The economically, and often politically, troubled nation is a matter of global concern when it comes to economic stability. With the 8th largest GDP in the world, Italy truly are too big to bail out, but if they were to sell some of their gold reserves, then they would lose security against the potential collapse of the euro.
- Gold reserves: 2,435.4 tonnes
- Percentage of total foreign reserves: 71.6%
- GDP: $2.77 trillion (5th largest)
- Stock performance: CAC rose 4.9% in Q3, up 6.1% YTD
France currently finds itself at quite an important crossroads, as socialist President Hollande continues on his quest to oppose austerity measures implemented by his predecessor, Nicolas Sarkozy. As new measures predominantly impact the highest earners and riches sectors of French society, there may continue to be a mass exodus, as has been illustrated by a number of high profile cases. Ultimately, France may even need to sell gold, but with the euro struggling, they may be unwilling to sacrifice their fall back plan.
- Gold reserves: 1,054.1 tonnes
- Percentage of total foreign reserves: 1.7%
- GDP: $7.3 trillion (2nd largest)
- Stock performance: Shanghai Composite 6.6% lower in Q3, 5.4% lower YTD
China is the famous pretender to the US as the world’s leading economy, and as the leading gold manufacturer, they are working tirelessly on building up substantial gold reserves. Indeed, it is not really know just how much gold China has in reserve, and quite soon the United States, and the rest of the world, may be in for quite a shock. Indeed, China’s focus on gold is viewed by many as a bid to put the final nail into the dollar’s coffin.
Jamie has recently got back from touring South America and is just starting to get back in the blogging seat after a five month hiatus.