In the current situation in which central banks are scrambling to build up their gold bullion reserves because it’s something they need to fall back on, which central bank has gold bullion and which doesn’t? There is a disparity between those countries that have gold bullion and those that don’t. Central banks that do not have gold bullion are continuously in pursuit of it—simply because they need it; they realize they can’t rely on fiat currencies anymore. As of October 2012, there were 31,477 tonnes of gold bullion in reserves at central banks around the world. The euro area, including the European Central Bank (ECB), held more than 34.0% of it. (Source: World Gold Council, last accessed October 5, 2012.) Looking at the top-four holders of gold, the central banks of the U.S., Germany, France, and Italy combined hold 16,416 tonnes of gold bullion in their reserves—that’s more than 52.0% of the entire world’s gold reserve. If observed individually, these central banks have 25.8%, 10.8%, 7.7%, and 7.8% of the world’s gold bullion reserves, respectively. The problem? China, Japan, Russia, and India do not hold nearly as much gold bullion as the countries I mentioned above. The U.S., Germany, France, and Italy hold more than 70.0% each of their reserves in gold bullion. China, Japan, Russia, and India each hold 10.0% or less each of their reserves in gold bullion. What does this mean? The reserves of the central banks of China, Japan, Russia, and India will be affected by the currency fluctuations, and they need more gold bullion to protect themselves from the volatility. This leads us to the ultimate question: why can’t the central banks of China, Japan, Russia, and India go out in the open market and just buy gold bullion to increase their positions? Fair question, but the issue is that total world mine production is much less than the demand from world central banks. In 2010, there were only 2,560 tonnes of gold bullion produced; in 2011, there were only 2,700 tonnes. (Source: The United States Geological Survey, January 2012.) At the end of September, the Chinese central bank had foreign exchange reserves of $3.3 trillion. (Source: Market Pulse FX October 19, 2012.) China currently holds 1.7% of its entire reserves in gold bullion. If China bought all the gold that is estimated to be produced this year—86.4 million ounces—the gold it would then own as a percentage of its reserves would only increase to six percent, still well below the 70.0% gold-to-reserves ratio of the U.S., Germany, France, and Italy. The moral of the story is quite simple: there is not enough gold being produced to satisfy demand. My conclusion ... Read More