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NBP declares an increase in gold reserves. Is almost 360 tons really not enough?

INVESTINGNBP declares an increase in gold reserves. Is almost 360 tons really not enough?

World Gold Council estimates that all central banks collectively hold 36,700 tons of gold, representing over 17% of the world’s total gold. Poland’s National Bank (NBP) has made a significant contribution to this figure. Poland ranks 15th worldwide in terms of gold reserves. The recent pause in gold purchases is merely a rest before the sprint towards a recently announced target of having 20% of Polish reserves in gold. But why do we need this gold and how much should we have? How do we rank compared to other countries?

Gold Giants

Still, central banks continue to cherish gold dearly. The total demand from these institutions reached 1,037.4 tons last year. Although this was 4% lower compared to the previous year, it still marks the second-best result in history.

China took first place in terms of gold demand, with its central bank reporting a purchase of 225 tons of metal last year. Poland took second place with a total of 130 tons, increasing our total gold reserves to 359 tons. Our purchases took place from April to November. Data from NBP’s reserve assets for December and January indicate that a break has been taken in the continuation of purchases. But it’s worth remembering Adam Glapinski’s declarations, who would like to see gold make up 20% of reserves in the future. Currently, gold makes up 12.4%, hence one may suspect that this is just a break, not a definitive halt.

According to the global ranking of gold reserves, by the fourth quarter of 2024, the top of the list, unvariably consists of Americans (8,133.46 tons), Germans (3,352.65), and Italians (2,451.84). It is interesting, however, that these leaders have not made purchases for a long time.

Our gold resources place us in third place in the Central and Eastern Europe region, just behind Russia, who is the leader (2,332.74 tons) – according to the data from the World Gold Council.

Why do we need gold?

“Monetary gold is an ideal element diversifying the structure of reserves. In the long term, it maintains purchasing power and when stored under our own control, it bears no counterparty risk. Furthermore, it’s an extremely liquid asset that can almost instantly be converted into any currency, and the demands for this metal are practically global. Undoubtedly, its possession strengthens the security level.” – points out Tomasz Gessner, the main analyst at Tavex. “Monetary gold, as an asset that has been with us for several thousand years and has proven its ability to retain purchasing power, unlike fiduciary currencies, is viewed as an element raising the status of a given state in the eyes of global investment capital.”

Interestingly, if we take into consideration the 50 countries with the largest gold reserves and relate them to the total reserves, the average is approximately 23%, which is very close to the percentage of gold reserves that the NBP aims to achieve.

Taking into consideration all global central banks, the average level of gold reserves in relation to total reserves hovers around 15%. It should be added that in the early 1980s, a decade after the end of the gold standard by President Nixon, this percentage exceeded 70%. The historical average for over five decades stands at around 40%.

Some Eurozone countries (e.g., the Netherlands) openly admit that they adjust the size of their gold reserves not so much with respect to their total reserve assets or the pan-European average in this regard but more in relation to the size of the economy, that is, GDP. The Dutch Central Bank holds gold worth about 4% of GDP, similar to France, Italy, and Germany. If Poland, still not a member of the Eurozone, were to follow a similar path, we would need to have about 450 tons of gold.

Relying on the average share of gold in the reserves of central banks, the declarations of the NBP president, or speculations on equating reserves in relation to GDP in the Eurozone, it can cautiously be assumed that the NBP’s gold reserves may eventually fall within the range of 450-580 tons.

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