Demand from Central Banks for Gold
I want to look at JUST the members of the IMF (that means several countries that recently bought gold are not counted) and see how much gold they need to buy to get their gold percentage of foreign currency reserves to a reasonable level. So any central bank that had reserves above the level is assumed to do nothing.
For 5% gold reserves they would have to buy 133.83 million ounces.
For 7.5% gold reserves they would have to buy 253.62 million ounces
For 10% gold reserves they would have to buy 372.32 million ounces
For 15% gold reserves they would have to buy 620.25 million ounces.
This shows the central banks for even low levels of gold as a percentage of foreign reserves have to buy HUGE amounts of gold. And this is just the 65 countries of the IMF (+China). WOW.
Put another way, if everyone wanted just 7.5% gold, they would have to buy the equivalent of all the gold reserves of the US.
There is an additional factor. These results mean almost all the reserves of the Central Banks are made up of other currency holdings (mostly dollars). As these currencies loose value, the reserves of the Central Banks are going to loose value. At what point are the Central Banks going to HAVE to take action to protect their reserves?
Lastly, I just noticed that an article shows that the world produces 80 million ounces a year. If the Central Banks all decided to buy to get to at least 5% gold reserves, they would buy almost 2 years of current production. That assumes near ZERO private purchases of gold. If they want to get to 7.5% of reserves as gold, they would buy the next 3 and a half years of production.
Note: I got the foreign reserves and gold holdings from the IMF website. Then in a spread sheet calculated the required purchases of gold. I assumed no Central Bank sold any gold. If the US, Germany and others sold enough gold to get to 15% then the numbers would about balance. But the US would give China roughly 206 million ounces of our 261 million ounces of gold.
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