By Dan Popescu

Changing Attitudes

With the help of a set of excellent charts on gold imports vs exports by Nick Laird (, I would like to give you a brief overview of where gold is going. We have heard for some time that gold is moving to the Far East but is it really only moving there?

1-world-gold-reserveOfficial gold reserves held by central banks – in the official sector, there has certainly been a noticeable shift, with emerging market central banks increasing their buying to such an extent that total central bank holdings have been rising since 2008, for the first time since the mid 1960s – click to enlarge.

Well if we start with the US, it certainly is going out. In the first chart, we can observe that gold has been leaving the US without exception at least since 1996. Even at the top of the gold bull market when the price crossed briefly $1,900, gold exports exceeded gold imports for the US. However, according to Nick Laird, if one adds US gold mine production to this, it puts the US in a net neutral position. So US imports plus production equals exports; this has been the case over the last 18 years.

2-us-gold-import-minus-exportUS gold exports and imports – adding back annual production reduces the difference roughly to zero – click to enlarge.

Is the same the case for Europe? Contrary to what one might think, while gold is moving from West to East, some of it is not going all the way to India and China but rather stays in Europe. I have always made a distinction between North America (US and Canada) and Europe. In the next chart below, it can be seen that European central banks have stopped selling gold in 2008, which corresponds with the financial crisis that almost brought down the international financial system.

They have not restarted buying, although we have interestingly heard several European central banks talking up gold last year. Last quarter, the central bank of Italy published a very positive study on the value of gold as a reserve asset. Last year Mario Draghi, president of the European Central Bank, when asked about gold in a Q&A after a presentation at the Kennedy School of Government at Harvard, replied without hesitation: “For central banks this [gold] is a reserve of safety, it’s viewed by the country as such. In the case of non-dollar countries it gives you a value-protection against fluctuations against the dollar.” Can we expect a change in the ECB’s attitude toward gold and the beginning of buying? I wouldn’t be surprised.

Mario Draghi on why he was never in favor of the Bank of Italy selling its gold

3-european-central-bank-agreementEuropean central bank agreement on gold selling – since the adoption of the 4th central bank gold agreement, the signatories have essentially stopped selling – click to enlarge.

Accumulation in Europe and the Far East

The next chart shows clearly that Europe has been importing more gold than it has exported since the low in the gold price in 1999. The lowest dollar gold price was the afternoon London fix on July 20, 1999 when gold was fixed at $252.80. Exports have only begun to exceed imports again in 2013 and have been decreasing again since then. In 2016 I expect imports in Europe to be higher than exports once more.

4-total-eu-gold-import-exportTotal European Union gold imports and exports – click to enlarge.

Two particularly interesting cases in Europe are Switzerland and Romania. In the next chart we can see that since the 1960s, more gold has been flowing into Switzerland than has been exported. However even more interesting is the high level of imports compared to exports in the 1970s and since 2008. Both periods were marked by major international financial and monetary crises. Switzerland is reputable as an excellent place to store wealth and in particular gold, as it is known for a stable political, economic and social environment. This explains the pressure on the Swiss National Bank to stop the flow of funds into Switzerland.

Gilles Labarthe, Swiss journalist and ethnologist, said “Switzerland is for gold what Bordeaux is to wine.” (see also: “Switzerland’s Role in the Gold Market“). Switzerland, according to Nick Laird, has net 7,930 tonnes of gold of which 1,040 tonnes consist of official reserves. My speculation is that there could be a lot more gold hidden in the Alps that is not officially accounted for.

5-swiss-gold-import-exportSwiss gold imports and exports – a lot of gold simply stays in Switzerland – click to enlarge.

Romania represents another extreme case in Europe. Romania with a GDP of only $199,950 m. is certainly not as rich as Switzerland which has a GDP of $703,852 m. However, Romania has a very large stock of gold in its official reserves (103.7 tonnes). According to, “Romania is one of the countries with the highest gold reserves per inhabitant (5.5 grams of gold per inhabitant), and the local currency is 60% to 70% offset by gold, said the Romanian Central Bank Governor Mugur Isarescu.” During a recent trip to Romania, I was also surprised by a marketing campaign at the foreign exchange desk of a major bank to sell gold bars to the public.

Russia is a large producer of gold so one would expect some gold to be exported, but looking at the next chart, we can see clearly the massive gold buying by the central bank of Russia since the 2008 financial crisis and an acceleration since the beginning of the new cold war and the sanctions imposed by the US and the EU. Since 2008, Russia has increased its official gold reserves four-fold. Russia buys most of its official gold internally from Russian gold miners.

6-russian-central-bank-gold-reservesGold reserves held by Russia’s central bank – click to enlarge.

If we move further east to Asia, we can see the large demand for gold by both India and China. Import restrictions imposed by the government of India have not stopped the flow of gold into India. Some estimates indicate that approximately 18,000 tons of gold are held in India, with most of it in private hands, vs. 557.7 tons held by the Reserve Bank of India. Indian gold in private hands represents about 10% of the world’s entire above-ground stock of gold.

Some estimates are even higher, up to approximately 30,000 tonnes. A French visitor to India, Francois Bernier, enviously wrote 360 years ago how “It should not escape notice that gold and silver, after circulating in every other quarter of the globe, come at length to be absorbed in Hindustan.” Roman historian, Pliny the Elder (Gaius Plinius Secundus, AD23 – AD79), complained some 1800 years ago, how India, the sink of precious metals, was draining Rome of gold, a lament   that resonates even today.

7-india-gold-importsIndia’s official annual gold imports – when import restrictions were introduced, smuggling of gold into India soared. These illegal gold imports are not included in the statistics, as their size is unknown – click to enlarge.

Both India and China are net importers of gold. The Reserve Bank of India announced in 2009 that it had increased its official gold reserves of 357 tonnes by 200 tonnes (56%), while China’s cumulative gold demand since 2008 has gone from zero to approximately 10,000 tonnes (as measured by Shanghai gold exchange withdrawals).

8-chindia-gold-demandFlow of gold into India (imports) and China (SGE withdrawals) – click to enlarge.

As can be seen from these charts, gold is certainly flowing from West to East, mostly transiting through Switzerland, but some of it stays in Europe. I have not mentioned Australia, Canada and South Africa which I guess as major gold mining countries are exporting more than they are importing, mostly to Asia.

Two other regions that have a strong affinity to gold are North Africa and the Middle East, but I don’t have a lot of detailed information on these. Saudi Arabia, one of the richest countries in the Middle East, is not making its official gold reserves public on a regular basis. Like China has done in the past, it announced in 2008 that it had doubled its gold reserves. We could get a similar announcement again soon and it wouldn’t surprised me if they hold more than 500 tonnes of gold in reserve by now. Jordan, a very small country in the Middle East and not an oil producer, has discreetly almost tripled (2.7 times) its official gold reserves since 2008.

Recent data (see the charts following below) have also shown accumulation of gold by Australian, Canadian and American individuals. Demand for gold coins in these countries has increased. These are mostly bought by small investors. However, Nick Laird has informed me that Bron Suchecki of the Perth Mint, an excellent gold analyst from Australia, told him that 90% of what the Perth Mint sells in Australia goes to overseas destinations; so Australians, similar to North Americans, are probably not large holders of bullion on a society-wide basis.

9-us-mint-gold-coin-salesGold coin sales by the US Mint have recently strengthened again. Retail investors are the main buyers of these coins – click to enlarge.

10-pert-mint-gold-coin-salesPerth Mint gold coin sales – the Perth Mint primarily sells to overseas buyers – click to enlarge.

As you can see gold is not only accumulated in the Far East (China and India), but also in Europe, the Middle East and North Africa.

The gold market is opaque, but my research and anecdotal evidence shows me that there is a lot of accumulation of gold occurring that is likely taking gold off the market for a long time. This is not short-term buying. As noted above, based on recent statements from European central bankers, I would not be surprised if even Europe soon started adding gold to its official reserves again.

In the 1980s and 1990s I was doing technical analysis research and was often asked by institutional portfolio managers not to tell anybody that they were using technical analysis in their decision processes. Computer screens with charts were turned off when someone came close. Technical analysis was considered unprofessional analysis (essentially voodoo). Today every respectable and established investment management firm has a technical analyst.

It seems to me to be the same with gold nowadays. Accumulation is taking place, but for the most part very discreetly. It is not good for one’s career in the investment industry today to mention gold and especially physical gold. I believe an allocation of 5% will become a standard portfolio allocation as it used to be in the 1960s. I am convinced this will happen sooner than most people think.

11-gold-percentage-golbal-financial-assetsGold as a percentage of global financial assets – in the 1960s, a 5% portfolio allocation was standard. Gold continues to exhibit excellent portfolio diversification characteristics – it would be sensible if allocations were increased again from their current low level (most of the increase since 2000 can be attributed to the fact that gold has vastly outperformed other financial assets since then – in spite of having been in a bear market since 2011).