Repatriated Gold Reaches Historic Highs

The share of global official gold reserves not stored at the Federal Reserve Bank in New York (FRBNY) and Bank of England (BOE) in London has reached 78% in 2024, from 51% in 1972.

The shift in this ratio appears to be accelerating and can be seen as a proxy for the West’s decline in financial dominance.

The Original Buildup of Foreign Gold in New York and London

“Gold is the bedrock of stability for the international monetary system,” wrote former President of the German central bank, Jens Weidmann, in 2019. Not surprisingly, no national currency has ever become the world reserve currency without a substantial amount of precious metal supporting it.

Before the U.S. dollar, the pound sterling was the world reserve currency. In the 19^th century, a significant part of global commerce was transacted in sterling (backed by gold) and cleared in London. Central banks could redeem British pounds for gold and build their metallic reserves at the vault of the BOE in the most liquid gold market globally: London.

After the Second World War, the dollar officially took over from sterling during the monetary arrangement dubbed “Bretton Woods.” In the aftermath of the war, the U.S. had the largest gold reserves of all countries by far, assuring confidence in the currency issued by the United States.

As trade was conducted primarily in dollars during Bretton Woods—which could be converted into gold at the Fed (acting as an agent for the Treasury)—countries with balance of payment (BOP) surpluses increased their gold reserves at the FRBNY vault. Many would rather own gold than dollars, especially as concerns grew (particularly by the French) that the greenback would be devalued due to America’s BOP deficit. 

Chart 1. Before 1940, many European central banks shipped gold to New York in anticipation of the Second World War.

Technically, the U.S. monetary gold is owned by the Treasury; the Federal Reserve itself does not own gold. Foreign central banks and official international organizations store gold at the New York Fed, no individuals or private sector entities. Data by the Federal Reserve System on its “earmarked” (custodial) gold does not reveal which entities make use of the vault.

Total earmarked gold at the FRBNY reached an astronomical high of 12,711 tonnes in 1972. At that point, the BOE’s total gold holdings accounted for 8,364 tonnes.

The World Starts to Repatriate Its Gold

Countries were pressured by the U.S. not to redeem dollars for gold during Bretton Woods, which de facto ended in 1971. During the demise of Bretton Woods, New York lost some significance as a global gold market to the advantage of London and Zurich.

Since the early 1970s, foreign central banks slowly began withdrawing metal from the Fed’s vault in lower Manhattan. In chart 2, we can see withdrawals accelerated in the early 1990s, which was likely due to selling by European central banks at the time.

The BOE neither owns any gold, but it stores the U.K.’s monetary gold (owned by HM Treasury), foreign official gold reserves, and private gold by bullion banks.

Sadly, the composition of official and private gold at the BOE is unknown. So, in order to get a sense of how much gold official institutions store at the Bank of England, I have relied on research by Ronan Manly and Nick Laird from 2015 and extrapolated the numbers.  

Finally, as I have reported in recent months, the People’s Bank of China (PBoC) and the Saudi Central Bank (SAMA) are buying vast amounts of gold under the radar. In the case of the PboC, it buys extraordinarily large amounts of gold in the London Bullion Market and repatriates immediately, not to risk being denied access to its reserves like Venezuela and Afghanistan.

As far as I can tell, outflows of foreign custodial gold at the Fed and BOE have stabilized in recent years, but there is no question the amount of gold held by the rest of the world within national borders has risen dramatically.

Consequently, the amount of world official gold reserves not stored at the infamous vaults of the FRBNY and BOE has gone up to a historic high of 78%.

Put differently, world official gold reserves (minus the gold owned by the U.S. and U.K.) stored in New York and London have reached a historic low of 22%.

Chart 2. Not included are foreign holdings in smaller Western storage hubs like Switzerland, France, and Canada, for which no data is available.

The West Is Losing Power

Not only is the West losing leverage over countries in the East as they repatriate gold, but non-Western countries are quickly catching up, relative to the West, by accumulating more gold.

Chart 3. Gold reserves of the West are primarily of the U.S. and eurozone countries.

Based on calculations of how much Asian central banks keep off the record, my estimate is that non-Western countries (“rest of the world,” or ROW) possess 18,643 tonnes of gold versus 21,470 by the West. Pretty soon, the majority of official gold reserves will be owned by ROW (currently, ROW holds 46%). 

Interestingly, the shift in the share of world gold reserves towards ROW is illustrative of global changes in economic and military power. As we are moving towards a more multipolar world, so too are global gold reserves distributed accordingly.

As the saying goes, “Whoever has the gold makes the rules!” Eastern countries will implement rules not in favor of the greenback. They will likely be able to circumvent the dollar by trading in national currencies through Project mBridge and store surpluses in gold.

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