The Polish central bank has purchased approximately 300 metric tonnes of gold in recent years in an effort to align its GDP-to-gold ratio with the average for the eurozone, as outlined in the secret EU plan.
For those unaware, the European Union’s (EU) ultimate goal is for every nation to adopt the euro and join the eurozone. Twenty of the 27 nations that comprise the EU at the time of writing are part of the eurozone. It is unclear when the remaining seven nations will adopt the euro.
Poland and Hungary have been one of the EU’s biggest buyers of gold in recent years. Hungary and Poland are not yet members of the eurozone. Following my publications, “Since the 1970s, Europe has been preparing a global gold standard.” It is undeniable that there exist covert agreements between the countries of the eurozone to align gold reserves about GDP to be ready for a new gold standard (or gold price targeting system), as indicated by Part 2 and “Dutch Central Bank Admits It Has Prepared for a New Gold Standard.” Poland’s gold-to-GDP ratio must be equal to the average for the eurozone for it to be admitted.
The agreements I’m referring to are private in part because many central banks in the eurozone—including Belgium—refuse to disclose the alignment of their gold reserves due to legal requirements for “professional secrecy.” However, a few of these central banks have unintentionally revealed that they base the amount of gold they own on the GDP ratios of nearby major economies, such as the Netherlands.
According to Bloomberg, Italy has officially exited China’s Silk Road Initiative, which, according to Foreign Minister Antonio Tajani, is because BRI has not produced the desired effects.
Poland, which is eligible to join the eurozone and is purchasing significant amounts of gold, which validates the agreements’ existence, is a problem for our current study. Not only are European central banks gradually disclosing their informal gold strategy, but all of their activities support this stance.
Data Shows EU Central Bank Balance Gold to GDP Ratios
In an interview conducted last month, a Dutch Central Bank (DNB) spokesperson acknowledged that the bank now owns gold valued at roughly 4% of GDP, bringing it in line with the holdings of Germany, France, and Italy. Though the gold price and, thus, the gold to GDP ratios, are not under the jurisdiction of the eurozone, there is an effort to standardize these ratios across the board, as the following figure shows.
There is even more stringent oversight of the eurozone’s overall international reserves (gold and foreign exchange) about GDP. Although European central banks have stated that they are not required by law to coordinate reserves, they have likely agreed to regularly utilize the foreign exchange to balance total reserves and to be able to precisely balance gold reserves among themselves on the day when a new gold standard is implemented. It would be politically too delicate to periodically modify gold stockpiles.
Poland owned 103 tonnes of monetary gold as of 2017, which accounted for less than 1% of its GDP. Poland needed to greatly increase its metal reserves to catch up to its European neighbors, and it achieved so in 2018 when the Polish Central Bank (NBP) began making aggressive purchases of gold. It currently has 334 tonnes, or about 3% of Poland’s GDP, in it.
The charts show that similar to its fellow members of the euro area, Poland would require 450 tonnes to attain 4% of GDP. Furthermore, NBP must immediately transfer gold to the European Central Bank upon joining the euro. Based on my computations, that amounts to roughly 16 tonnes at the current gold price. I anticipate NBP purchasing an additional 130 tonnes overall.
Why Central Banks Harmonize Gold Reserves
The demand for gold increased in the late nineteenth century as more nations adopted the traditional gold standard. When a nation was on the gold standard, the increased demand for gold led to upward pressure on its currency, which in turn caused downward pressure on the prices of goods and services denominated in that currency. Deflationary pressures played a role in the adoption of the gold standard.
The less smoothly an international monetary system based on gold transitions, the more skewed the current worldwide distribution of official gold reserves is. Therefore, there is an incentive for each central bank that maintains gold reserves as its “Plan B” (a gold standard) to persuade other central banks to follow suit and proportionately balance the amount of their respective bullion hoards. Thus, governments can stabilize their economies by moving to a stable global gold standard in the event of a serious financial catastrophe, which will spread like wildfire in today’s interconnected markets. Most central banks, in my opinion, are aware of this dynamic.
Conclusion
Hungary’s gold reserves climbed significantly from 3 tonnes in 2017 (0.1% of GDP) to 94 tonnes in 2021 (3% of GDP), second only to Poland. Remarkably, gold “may play a stabilizing role and act as a major line of defense under extreme market conditions or in times of structural changes in the international financial system,” according to the Hungarian central bank. Even while its gold-to-GDP ratio is still much lower than the regional average, the Czech Republic has also been purchasing recently. In the upcoming years, I wouldn’t be shocked if the Czechs purchased an extra 150 tonnes.
These trends are probably not exclusive to Europe. As I have previously shown (here, here), China is also concerned about aligning its official gold reserves with the growth of its economy. My analysis indicates that the Chinese central bank presently holds 5,220 tonnes of gold or nearly 2% of the country’s GDP. This could be the reason behind the People’s Bank of China’s massive annual gold purchases (about 700 tonnes) following the West’s decision to freeze Russia’s dollar assets. It cannot afford to wait and must increase its gold reserves by double.
One test scenario is Singapore, which has been a significant gold buyer since 2021 and appears to be attempting to catch up as well. Singapore’s gold to GDP ratio increased from 1% in 2018 to 3% currently. Whether Singapore ceases purchasing gold after it hits 4% (or whatever the average ratio in the eurozone is at any given time) will be interesting to watch.
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The US GDP to Gold Ratio is about $25.5T to $480B. Or, about 50 : 1.