BRICS Misnomer?
In recent days, the BRICS countries are convening in Kazan, Russia. Some media have reported on this conference from an interesting perspective, namely the total amount of gold reserves held by the BRICS countries.
It should be clarified that the term "BRICS" does not directly relate to gold; it is a collective term for several of the world's largest emerging economies with the highest potential for development. The original BRICS countries consist of five nations: Brazil, Russia, India, and China. The acronym BRICS is derived from the first letters of the English names of these countries.
Reserve gold is different from jewelry gold and must meet certain standards to be considered as such, making it the cream of the crop in the gold sector with the highest quality.
The more reserve gold a country possesses, the stronger its financial foundation. The high correlation between the top ten countries with gold reserves and those with the top ten GDPs globally proves this point.
Internationally, the imperial unit of measurement—ounces—is commonly used for gold reserves. For ease of understanding, this article will use the familiar weight unit of tons.
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Among the BRICS countries, Russia has the most gold reserves, with 2340 tons, ranking fifth globally.
Russia's economic size is not particularly prominent among major powers, with a GDP far lower than those of the other two BRICS countries, China and India. However, this does not prevent it from having the largest amount of gold reserves among the BRICS.
This is related to the era of the former Soviet Union, which, as one of the world's only two superpowers, accumulated a considerable amount of wealth, including gold reserves. These assets remained with the "heir" of the Soviet Union, Russia.
China, the world's second-largest economy and the economic powerhouse among the BRICS countries, has slightly less gold reserves than Russia, amounting to 2260 tons.
This figure has increased significantly compared to two years ago because, starting from November 2022, our country has been continuously increasing its gold reserves for 18 months, only pausing the net purchase of gold in May of this year.In the remaining BRICS countries, India has a relatively large amount of gold reserves, amounting to 841 tons. Saudi Arabia, South Africa, the United Arab Emirates, Brazil, and Egypt have less, which is more in line with their economic size and level of development.
Excluding Iran and Ethiopia, which have not disclosed data, the total gold reserves of the BRICS countries amount to 6,200 tons, while the total gold reserves of all countries in the world are 29,030 tons. From this, it can be calculated that the reserves held by the BRICS countries account for about 21% of the global total.
From the perspective of gold reserves alone, apart from China and Russia, the other BRICS countries seem a bit "overstated." For comparison, let's look at how much gold is stored in the vaults of the top five countries with the largest gold reserves in the world.
The United States, being the world's largest economy, has a gold reserve that is far ahead of other countries, with a total of 8,133 tons of gold reserves. This is 3.47 times that of Russia and 3.6 times that of China, and it is nearly 2,000 tons more than the combined gold reserves of all BRICS countries.
One of the reasons the US dollar is the global mainstream currency is that the United States has a large amount of gold reserves.
After the United States comes Germany, with 3,355 tons of gold reserves, which is also a significant amount. Italy and France rank third and fourth, respectively, both with over 2,400 tons of gold reserves.
The combined gold reserves of the United States, Germany, Italy, and France, four Western economically developed countries, reach an astonishing 16,376 tons, accounting for more than half of the global total, which is an extremely exaggerated figure.
Can the BRICS countries surpass Western developed countries by increasing the amount of gold? It is extremely difficult in the short to medium term.
Firstly, the pricing and trading currency for gold reserves is the US dollar. Apart from China and Saudi Arabia, the other BRICS countries do not have much foreign exchange reserves to begin with, and they do not have enough US dollars to massively increase their gold holdings.
Secondly, even a country with the largest foreign reserves like China cannot simply buy gold whenever it wants.As previously mentioned, China began to increase its gold holdings in November 2022, and after 18 consecutive months of net purchases, the reserve gold only increased to 2260 tons, which is only $191.5 billion in U.S. dollars, not even close to a fraction of our $3.3 trillion in foreign exchange reserves.
Why, despite purchasing for so many months, is the reserve gold still not worth even $20 billion? Or, why don't we buy more reserve gold, say $100 billion or more in a month?
In addition to the fact that purchasing reserve gold in the short term would cause prices to rise significantly, making it very uneconomical, a more important reason might be that it's simply not available for purchase.
You see, gold is valuable because it is limited in quantity. If it were as abundant as copper or iron, it wouldn't be valuable and wouldn't have been pursued worldwide for thousands of years. Limited quantities are often not something you can buy with money, such as the world-famous painting, the Mona Lisa's smile; there is only one in the world, and no amount of money can buy it because the seller simply won't sell.
The same principle applies to reserve gold. As mentioned earlier, more than 50% of reserve gold is in the hands of four countries. Among the top ten reserve gold countries, there are also countries like Japan and the Netherlands. These countries have one thing in common: they are not short of money, and they don't need to sell their precious gold to exchange for foreign exchange reserves. On the contrary, it's already good that they don't compete with other countries for reserve gold in the open market.
Countries that sell reserve gold are generally "poor countries," and they will only sell when they have no other choice. These countries don't have much gold to begin with, so how can buying a little bit from them at a time quickly increase the quantity?
Therefore, the BRICS countries still have a long way to go to truly live up to their name, unless one day a super large gold mine is discovered, or a few wealthy reserve gold countries suddenly run out of money and have to sell their gold.
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