Within the world of central bank and government gold reserves, there is
often an assumption that these gold holdings consist entirely of gold bullion
bars. While this is true in some cases, it is not the fully story because
many central banks and governments, such as the US, France, Italy,
Switzerland, the UK and Venezuela, all hold an element of gold bullion coins
as part of their official monetary gold reserves.
These gold coin holdings are a legitimate part of gold reserves since
under International Monetary Fund (IMF) definitions, “monetary gold
consists of gold coins, ingots, and bars”. In central banking parlance,
monetary gold is simply gold that is held by a central bank or government as
a reserve asset. Other central bank reserve assets include foreign exchange
holdings and holdings of IMF Special Drawing rights.
Elsewhere in IMF definitions, it is stated that “monetary gold is
generally construed to be at least 995/1000 pure.” Many
government and central bank gold coin holdings consist of previously
circulated gold coinage. Since gold coins often had – and still have –
a purity of less than 99.5% gold due to the addition of other metals for
added durability, this ‘generally construed’ leeway in the IMF definition is
undoubtedly a practical consideration that allows gold coins to be classified
as monetary gold.
Central banks and governments hold gold for the same reasons that private
citizens hold gold. Gold is real money with no counterparty risk, gold is a
store of value, and gold is a safe haven asset. In general, central banks and
governments are as happy holding bullion in gold bar form as in gold coin
form. This is because physical gold is physical gold, and a gold coin and a
gold bar will both provide their holders with the same benefits and protections.
Only the physical form differs. In practice, the types and quantities of gold
coins held by central banks and governments are extensive and varied as a
quick tour d’horizon reveals.
Starting with the largest official
sector gold holders, 3 of the top 5 gold holding countries have substantial
gold coin holdings in their claimed reserves. The Banque de France, the
guardian of France’s gold reserves, holds 2435.4 tonnes of gold consisting of
a
massive 100 tonnes of gold coins, and 2,335 tonnes of gold bars. Of these
gold coins, 45% are French gold coins (probably Napoleans) and 55% are
foreign gold coins, some of which are from the US. In the past, the Banque de
France had melted part of its gold coin holdings into gold bars without
considering their potential numismatic value. But after finding some US 20
dollar gold coins were worth USD 20,000 a piece, the Bank’s current policy is
to scrutinise every coin.
Banca d’Italia stores approximately half of Italy’s 2451.8 tonnes of gold
under its headquarters in Rome, with most of the other half stored at the
Federal Reserve in New York. Of the 1199.4 tonnes of Italian gold in Rome,
Banca d’Italia states that it holds
4.1 tonnes of gold coins, in the form of 871,713 coins. This would give
each gold coin an average gold content of 0.151 troy ounces. This hoard most
likely includes historic gold Italian 10 Lira and 20 Lira coins.
The US Treasury, the official holder of the US gold reserves, claims to
hold gold coins containing 73,829.5 fine ounces of gold (2.3 tonnes) in the
custody of the Federal Reserve Bank of New York. While a small subset of
these coins weighing 377.4 ounces is on display in New York, the remaining
coins, containing 73,451 fine ounces of gold, are held in The New York Fed’s
vault compartment K in 384 bags weighing a gross 80,855.70 ounces. These
coins are all either 0.9 fine or 0.9167 fine gold. For details see page 132 here.
These US Treasury held gold coins at the Fed are in addition to the
2,783,218.6 (86.5 tonnes) of gold coins that the US Treasury claims to hold
within the US
Mint’s working stock.
Venezuela’s gold holdings, which have practically all been sold off or
swapped for foreign exchange recently, also contain gold coin holdings in the
form of historic gold US Eagles, as well as gold US Liberty and ‘Indian Head’
coins (see page 17 here).
Notably, the Venezuelan central bank says that these coins would have a
numismatic premium valuation depending on their scarcity, design and
condition. Given the ongoing and deteriorating economic situation in
Venezeula, expect these gold coins to be either sold on the market or else
melted down and shipped out of the country, probably to Switzerland.
Speaking of Switzerland, the Swiss National Bank (SNB) in its publications,
says that its “gold holdings are mainly in the form of gold bars, with
the remainder in gold coins“. The SNB doesn’t elaborate on what type of
gold coins it holds, and when asked recently, in the spirit of central bank
secrecy, it not surprisingly declined to elaborate. Most likely this Swiss
hoard includes historic Swiss Franc gold coins, and even old Latin Monetary
Union gold coins.
The United Kingdom, through HM Treasury’s Exchange Equalisation Account
(EEA), claims to hold 310.3 tonnes of gold in its reserves, all of which is
held in custody at the Bank of England. The EEA
2014/2015 accounts states that “The gold bars and gold coin in the
reserves were stored physically at the Bank’s premises“. As to what type
of gold coins the UK holds, HM Treasury didn’t repond to a recent query, but
undoubtedly, the Treasury holds gold Sovereigns as HM Treasury archives reveal.
Among other central banks, Romania holds 14% of its monetary gold in the form of gold
coins, amounting to approximately 14.43 tonnes. The Central
Bank of Peru includes 552,191 troy ounces (17.7 tonnes) of gold coins in
its monetary gold holdings. These coins are described as “commemorative
coins” and are held domestically “in the vault of the Central Bank”.
Interesting the Peruvians apply a small valuation provision for “for cost
of converting gold coins to high purity or ‘good delivery’ gold bars” for
potential use on the wholesale gold market. The Central Bank of Ireland is
custodian for Ireland’s circa 6 tonnes of gold, 5.7 tonnes of which is
supposedly stored in bar form at the Bank of England in London, while
approximately 10,000 ozs are in gold coin form stored at the Central Bank’s
currency centre facility in Dublin.
Even Canada made headlines with its gold coin holdings recently when the
Bank of Canada sold off the last of that country’s eventually
tiny gold holdings which had been exclusively in the form of gold coins
since the early 2000s. These gold coins were King George $5 and $10 Canadian
coins, the best examples of which were sold
to collectors with the rest melted down into gold bars by the Royal
Canadian Mint and sold on the wholesale gold market, yet again highlighting
gold’s high liquidity.
Central banks will always downplay the existence of gold on their balance
sheets since gold competes against national fiat paper currencies.
However, the actual course of action of central banks and governments in
holding vast amounts of gold bars, as well as substantial quantities of gold
coins, demonstrates that central banks and sovereigns continue to view gold
as a strategic reserve asset and as the ultimate money. Luckily, private
individuals too can replicate the holdings of these giants by also acquiring
and accumulating gold
bars and gold coins
for the same reasons as sovereign entities and monetary authorities do. Doing
as central banks do, not as they say, is certainly a better strategy than
blind faith in today’s distorting and reckless centrally planned monetary
policies.
Ronan Manly
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