Throughout history, there have been times when gold didn’t perform as well as the S&P 500, but these periods of underperformance have often been followed by strong growth in the price of gold. When people start thinking that gold is losing its importance, it can be a good opportunity to invest in it. This pattern aligns with the commodity cycle, and it’s important to remember that there has never been a prolonged gold bull market that didn’t coincide with a broader natural resource market bull market. Given the current economic imbalances, owning hard assets like gold is crucial.
We’ve been here before.
Investors who criticize gold for not performing as well as other assets are asking the very wrong question.
This chart provides a clear explanation of why skepticism towards the metal represents such a significant opportunity.
Throughout history, there… pic.twitter.com/ipnNVkKgdI
— Otavio (Tavi) Costa (@TaviCosta) September 24, 2023
My estimation of global official gold reserves hit 38,764 tonnes in Q2 2023, breaking its previous record from 1965. The new high confirms the world has entered a new era of gold. Central banks will continue to accumulate gold and the metal’s role in the international monetary system will increase to the detriment of the US dollar.
Analysts widely use the International Monetary Fund (IMF) calculation for total official gold holdings, though what is usually overlooked is that this number is an estimate by the Fund. As mentioned in my previous article on the official gold reserves of China, not every central bank is transparent about its gold holdings. The Chinese central bank (PBoC) reports to have 2,113 tonnes, while it’s an open secret in the gold industry the PBoC owns much more than that—about 5,000 tonnes, according to my analysis. Another example, the central bank of Syria stopped reporting its gold holdings in 2011. For its computation of world holdings, the IMF carries forward the last known data point, assuming Syria still holds 26 tonnes.
My personal evaluation of global official gold reserves is largely based on how the IMF compiles its world series, the main difference being “unreported purchases” traced by industry insiders that I include in my data. My approach:
- The base consists of the the last registered volumes from all central banks and monetary authorities, also of the ones that stopped reporting years ago.
- For China I use my own numbers going back to 1995.
- Unreported purchases by central banks other than the PBoC are added, measured by the difference between the World Gold Council’s estimated total purchases based on field research and reported changes by all central banks combined.
- Known reserves by sovereign wealth funds are included*.
- Gold owned by international financial intuitions such as the European Central Bank and West African Economic and Monetary Union is also added.
- Swaps on the balance sheets of the Turkish central bank and Bank for International Settlements (BIS) are subtracted.
Based on my methodology, world official gold holdings reached 38,764 tonnes in June 2023, which is approximately 400 tonnes more than the prior high set in 1965 at 38,347 tonnes.