Central bank’s gold holdings usually greatly undervalued

The significance of gold in the reserves held by central banks is often overlooked. This may be because these gold bullion holdings are often included in official statistics at artificially low valuations. If these gold holdings are reassessed at current market values a very different picture emerges. The United States financial authorities in particular maintain a large investment in gold.

Gold accounts for 48.5% of the foreign exchange reserves of the major industrial countries, measured at current valuation. The United States, with a 78.3% investment in gold, is by far the highest of the major trading nations.

With the exception of Australia, the major Free World gold producing countries — the United States, Canada and South Africa — all maintain a very high proportion of their foreign reserves in the form of gold.

Central bankers in most of the major trading countries exhibit a strong preference for gold as the dominant component of their foreign exchange reserves. Despite considerable rhetoric and concerted attempts by the international community to replace gold with other financial instruments, such as Special Drawing Rights, policy makers in most countries evidently remain unpersuaded by the argument that gold has been superseded by paper substitutes.

Not only do these figures imply widespread official confidence in gold as the ultimate international currency, they also suggest that central banks have a common interest in a high and stable gold price. GoldCorp Australia.