Tag: #ecb

ICAEW chart of the week: Gold

With President Trump planning to visit Fort Knox to check up on the US government’s gold reserves, my chart for ICAEW this week looks at just how much gold is owned by governments around the world.

According to the latest statistics from the World Gold Council, sourced principally from the International Monetary Fund (IMF), governments and international financial institutions around the world own 35,864 tonnes of gold. Much of this gold sits in the Bank of England, Fort Knox and in central bank vaults around the world.

At a price of around £74 per gram, the total value of ‘government gold’ adds up to somewhere in the region of £2.7trn. This is estimated to be around one-sixth of the total above-ground stock of gold in the world.

While the US is the largest individual holder of official gold reserves with 8,133 tonnes of gold worth around £600bn, the 27 countries of the EU and the European Central Bank collectively own a total of 11,719 tonnes of gold worth approximately £870bn. This includes Germany with 3,352 tonnes, Italy 2,452 tonnes, France 2,437 tonnes, Netherlands 615 tonnes, the European Central Bank 507 tonnes, Poland 448 tonnes, Portugal 383 tonnes, Spain 282 tonnes, Austria 280 tonnes, Belgium 227 tonnes, Sweden 126 tonnes, Greece 115 tonnes, Hungary 110 tonnes, Romania 104 tonnes and other EU member states with 281 tonnes.

The next biggest holder of gold is the IMF with 2,814 tonnes (worth around £210bn), followed by Russia with 2,336 tonnes (£175bn), China 2,280 tonnes (£170bn), Switzerland 1,040 tonnes (£77bn), India 876 tonnes (£65bn), Japan 846 tonnes (£63bn), Türkiye 615 tonnes (£46bn), Taiwan 424 tonnes (£31bn), Uzbekistan 383 tonnes (£28bn), Saudi Arabia 323 tonnes (£24bn), the UK 310 tonnes (£23bn), Lebanon 287 tonnes (£21bn) and Kazakhstan 284 tonnes (£21bn).

The total for other countries adds up to 3,194 tonnes worth, or around £235bn or so, including Thailand 235 tonnes, Singapore 220 tonnes, Algeria 174 tonnes, Iraq 163 tonnes, Venezuela 161 tonnes, Libya 147 tonnes, Brazil 130 tonnes, Philippines 130 tonnes, Egypt 127 tonnes, South Africa 125 tonnes, Mexico 120 tonnes, Qatar 111 tonnes, South Korea 104 tonnes and the Bank for International Settlements 102 tonnes. 

While the level of official gold holdings is partly driven by the economic size of the countries concerned, it also depends on their reserve strategies, with US, German, French and Italian gold holdings making up around 75%, 74%, 72% and 71% of their official reserves respectively, in contrast with 6%, 9%, 11% and 15% for China, Switzerland, India and the UK, for example. 

President Trump’s plan to visit Fort Knox to personally inspect his nation’s gold holdings reflects one of the benefits of investing in a physical commodity such as gold – you can count gold bars, weigh them and check their purity, as well as admire its shiny quality. He may have a less satisfying experience in verifying any future strategic crypto-currency reserve, where entries in a ledger are somewhat more ephemeral.

This chart was originally published by ICAEW.


ICAEW chart of the week: Eurozone government bond yields

My chart for ICAEW this week is on the cost of government borrowing in the Eurozone, which on 4 September ranged from 2.17% for Danish 10-year bonds up to 3.59% for their Italian equivalents.

ICAEW chart of the week: Eurozone government bond yields. Bar chart showing the yields on 10-year government bonds on 4 September 2024, the spread versus German bunds, and each countries’ debt to GDP at the end of the first quarter of 2024. Denmark: 2.17% yield, -0.05% spread, 34% debt/GDP. Germany: 2.22%, -, 63%. Netherlands: 2.51%, +0.29%, 44%. Finland: 2.59%, +0.37%, 78%. Ireland: 2.67%, +0.45%, 43%. Austria: 2.71%, +0.49%, 80%. Belgium: 2.90%, +0.58%, 108%. Portugal: 2.82%, +0.60%, 100%. France: 2.93%, +0.71%, 111%. Slovenia: 2.94%, +0.72%, 71%. Cyprus: 3.00%, +0.78%, 76%. Spain: 3.02%, +0.80%, 109%. Greece: 3.28%, +1.06%, 160%. Slovakia: 3.30%, +1.08%, 61%. Malta: 3.34%, +1.12%, 50%. Lithuania: 3.36%, +1.14%, 40%. Croatia: 3.41%, +1.19%, 63%. Italy: 3.59%, +1.37%, 138%. 5 Sep 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: Koyfin, ’10-year government bond yields’, 4 Sep 2024; Eurostat, ‘Government debt to GDP, Q1 2024’. © ICAEW 2024.

My chart this week is on the range of yields payable on 10-year government bonds by 18 out of the 20 countries in the Eurozone for which data is available.

The chart illustrates how investors in German 10-year government bonds (known as ‘bunds’) would have received a yield to maturity of 2.22% – or conversely the German government could have borrowed at an effective interest rate of 2.22% if issuing fresh debt at that point in time. Yields on German bunds are used as benchmark rates for government debt not just in the Eurozone, but globally.

Just one country in the Eurozone has a lower 10-year bond yield than Germany, which is Denmark at 2.17% on 4 September, which is a 0.05 percentage points or 5 basis points (bp) ‘spread’ below the benchmark bund rate. 

While quoted yields move up and down all the time, sometimes by quite large amounts, spreads are much less volatile, providing an insight into how debt investors perceive the relative risks of investing in different countries’ sovereign debt.

The next lowest yields were the Netherlands at 2.51%, with a spread of 0.29 percentage points above bunds, and Finland at 2.59% (+0.37%). This is then followed by Ireland on 2.67% (+0.45%), Austria on 2.71% (+0.49%), Belgium on 2.80% (+0.58%), Portugal on 2.82% (+0.60%), France on 2.93% (+0.71%), Slovenia on 2.94% (+0.72%), Cyprus on 3.00% (0.78%) and Spain on 3.02% (+0.80%). There is then a small jump to Greece on 3.28% (+1.06%), Slovakia on 3.30% (+1.08%), Malta on 3.34% (+1.12%), Lithuania on 3.36% (+1.14%) and Croatia on 3.41% (+1.19%). 

The highest yield for investors among Eurozone countries – and hence the highest borrowing cost for its government – is Italy with 3.59%, which is 1.37 percentage points above the effective interest rate at which Germany could in theory borrow.

Comparing the bond yields in the Eurozone provides an insight into the relative strengths and weaknesses of these countries’ public finances and economies given that they all share a currency, a central bank base interest rate (currently 3.75%), and are all in the EU Single Market and Customs Union. Comparing yields with other currencies, such as the UK’s 3.95% for example (not shown in the chart), needs to take other factors into account, such as the UK’s much higher central bank base rate of 5%.

The chart also reports the government debt to GDP levels of each country for the second quarter of 2024 according to Eurostat, which may help explain why Denmark (with debt/GDP of 34%) pays a significantly lower borrowing cost than Spain (109%). 

However, debt/GDP doesn’t explain all of the differences, with the 10-year yield on Greek government debt (debt/GDP 160%) of 3.28% for example being significantly lower than the 10-year yield on Italian government debt (debt/GDP 138%) of 3.59%. 

Not shown in the chart are Estonia (debt/GDP 24%) and Latvia (45%), both of which tend to borrow at shorter maturities.

The lack of a firm correlation between debt/GDP and bond spreads should not be surprising as debt/GDP is a relatively crude measure of public finance strength or weakness. It excludes most government assets and non-debt liabilities, the funded or unfunded nature of their social security systems, as well as a country’s medium- and longer-term economic prospects and the perceived stability of that country’s government. These are all factors debt investors take into account when deciding the level of risk that they are willing to accept when investing.

This chart was originally published by ICAEW.