Following a regular review of its gold strategy and storage policy, the OeNB has adopted a new gold storage policy: By 2020 at the latest, half of Austria’s gold reserves totaling 280 tons are to be stored in Austria. In other words, in the future, about 140 tons of gold will be held in Austria, some 90 tons of which in vaults at the OeNB and some 50 tons in vaults at Münze Österreich AG.
The gold holdings to be kept in storage by the OeNB will comprise around 7,200 gold bars, while Austria’s total gold reserves of 280 tons equal some 22,400 gold bars.
The 140 tons remaining in custodian storage abroad will be divided between London (an estimated 84 tons) and Switzerland (56 tons). Using different storage locations helps the Austrian central bank reduce concentration risk, while still being able to use gold in the gold markets of London and Switzerland should the need arise.
Gold has traditionally served, and continues to serve, as an important store of value, allowing central banks to diversify their reserve assets. Hence, gold also represents a key reserve asset for the OeNB. The gold held by all euro area central banks is part of the Eurosystem’s reserve assets and thus helps stabilize the euro. In terms of the Euroystem’s overall gold reserves, the OeNB’s current gold holdings roughly account for the OeNB’s share of the ECB’s capital. From a monetary policy perspective, the volume of gold held by the OeNB is deemed to be appropriate relative to the size of both its total reserve assets and the Austrian economy.
Development and importance of gold reserves in Austria
Of the 78.2 tons of gold confiscated by the Deutsche Reichsbank in 1938, 50.1 tons were restituted after the war. The post-World War II “economic miracle” fueled a sharp increase of gold reserves in the 1950s and 1960s. In the 1980s, the OeNB’s holdings of gold reserves peaked at some 657 tons. The OeNB has been keeping the bulk of gold reserves in storage abroad because, in the event of a crisis, gold can be used effectively only in major international centers for the gold trade. Moreover, during the Cold War, geopolitical considerations had come into play as well.
While up to the early 1970s gold reserves had been decisive for central banks in maintaining gold parity, gold was no longer backing the currency in circulation after the 1973 collapse of the Bretton Woods system and thus lost in importance. Moreover, the introduction of the euro as a noncash currency in 1999 further reduced the Eurosystem’s need to use its gold reserves to smooth out exchange rate movements of other European currencies.
In the 1990s, the OeNB’s gold holdings decreased, as around 22 tons were put into custody with the ECB and, in addition to that, the OeNB sold part of its gold. Since the year 2007, the OeNB’s gold stock has remained unchanged at 280 tons.
The countries with the largest gold reserves are the United States of America (some 8,133 tons), Germany (some 3,381 tons) and Italy (some 2,452 tons). The gold reserves held by the Eurosystem as a whole amount to about 10,789 tons.
Gold as a reserve asset
Many central banks keep gold in storage as a reserve asset, with gold bars symbolizing stability.
The gold bars held by central banks as reserve assets must meet the good delivery rules of the London Bullion Market Association relating, for instance, to the dimensions, weight and fineness of a gold bar. The minimum acceptable fineness, which determines the actual gold content, must be 995.0 parts per thousand fine gold. Furthermore, good delivery gold bars must have a serial number and the assay stamp of the certified refiner. The gold bars that have so far been returned to the OeNB weigh about 12.5 kg each and are about 25 cm long, about 7 cm wide and about 4 cm high. Each gold bar and its specifications are documented in a gold bar list.
Verifying the authenticity of gold
Like with most other things of great value, there have also been attempts to counterfeit gold bars. The method has remained more or less unchanged over time. As a rule, inferior metals, such as iron or tungsten are used to produce the core of the bar and only the coat is gold. Therefore, subjecting gold bars merely to an external check does not suffice to verify the authenticity of gold.
As gold holdings are being repatriated from abroad, each gold bar is verified by using a high-precision scale for determining its weight, ultrasound equipment for examining its core and x-ray fluorescence for determining its purity.
London, Zurich and New York continue to be the major centers for gold trade. Gold prices are typically quoted in U.S. dollars per troy ounce (1 ounce = 31.103 g).
The price of gold is determined by supply and demand, with the demand of the jewelry industry and the electrical industry being driving forces as well as investors’ propensity to buy gold bars and coins. Gold sales and purchases conducted by central banks likewise leave their mark on the gold price. The price of gold is set twice daily (at 10:30 and 15:00) in London during the London Bullion Market Association’s gold price auction.
Central Bank Gold Agreement (CBGA)
Central banks are basically free to choose how much gold they hold and where their gold is kept in storage. To prevent market turbulence or the buildup of pressures on the gold market, European central banks have been coordinating their gold sales since 1999. Under the current CBGA covering the period from 2014 to 2019, the participating euro area central banks as well as Sweden and Switzerland have stated that they currently do not have any plans to sell significant amounts of gold.