The economic crisis by the coronavirus pandemic has seen some countries liquidate or top up their gold reserves. Data acquired and calculated by Finbold.com indicates that four of the top 12 countries with the highest gold reserves cumulatively added 208.34 tons of gold between March and December 2020. The remaining eight countries cumulatively liquidated 12.78 tons of gold during the same period.
The United States, which holds the highest reserves, added 92.23 tons, increasing its haul to 9,057.38 tons from 8,965.15 tons held in March. Germany follows a distant second with 3,703.74 tons of gold having liquidated 5.4 tons from March’s 3,709.14 tons. The International Monetary Fund gold reserves are at 3,100.38 tons while back in March the figure stood at 3,101.53 tons. The institution has liquidated a total of 1.1 tons of gold.
Currently, Russia holds 2,569.72 tons in gold reserves, an addition of 65.51 tons on the 2,504.21 tons held in March. China has upped its reserves by 36.75 tons to 2,196.55 tons as of December 2020. In March, the figure stood at 2,159.8 tons.
Central banks leverage on gold’s safe-haven status
Historically, countries have kept gold bullion through their central banks or treasuries. The reserves add value to a country’s creditworthiness in the issuance of currency and bonds. Gold also acts as a measure of protection against inflation, acquiring loans, and preventing economic meltdowns. The precious metal has helped countries handle the impact of negative sovereign bond yields and has acted as a source of value against deflation. Gold has also helped banks lower currency concentration within their portfolios.
From the data, leading gold holders increased their reserves to act as a cushion during the coronavirus pandemic crisis. The wide-scale lockdowns led to the closure of many economies as people remained at home. The stock market crashed to historical lows leaving central banks to accumulate more gold as an alternative source of wealth.
In general, the economic crisis caused by the pandemic created an uncertain outlook that also affects gold. Different economies have begun recovering, with the stock market hitting new all-time highs. Although the gains are still under threat from a second wave coronavirus, the possibility of a vaccine in the coming days has acted as a major booster.
It is worth mentioning that when the pandemic hit, most countries began a new dash towards gold. The dash came in the backdrop of central banks printing massive amounts of money to stimulate the global economy. Notably, gold continues to have an intrinsic value reassuring countries of good returns in case of heightened inflation.
Notably, some countries liquidated their reserves to boost their cash reserves. Central banks took advantage of the high gold prices. Selling the gold resulted in more cash especially for countries that were hard hit by the pandemic.
Impact of pandemic on gold not clear
Although the dash for gold has slowed, it is not yet clear how the pandemic has affected central banks’ attitude towards gold. If the institutions are convinced that the precious metal will soar in the coming days, then another buying frenzy should be expected.
Despite central banks turning to Gold as a haven, there have been concerns about the precious metal. In the course of the pandemic, gold prices fell, especially during heavy risk-off sessions. This prompted worries among economists about gold’s haven status. Many still don’t understand why it lost value in the course of economic turmoil.
Despite the setback, central banks understand gold’s strategic value and resilience. The metal’s performance in recent times highlights the benefits of these attributes. Just like previous economic meltdowns, gold remains an indispensable central bank reserve asset for now.