Central banks are contributing to world gold demand. The latest data from the World Gold Council indicate even more changes among the nations holding the most in gold reserves. Those are also some of nations whose creditworthiness is now under question during the debt crisis in Europe. 24/7 Wall St. looked at the 13 nations with the highest gold reserves, as well as two institutions, to see how each might affect future gold demand.

While investment demand was the key driver to increased gold demand during the past quarter, it is central bank gold buying and selling that is going to be a key factor for demand ahead. The council projected that central bank demand is expected to continue as creditworthiness woes of western governments has come front and center. In fact, the council also cited many new central bank entrants have emerged as they move to diversify reserves. Further, the council sees this increased central bank activity trend continuing into 2012.

24/7 Wall St. reviewed the top 13 nations that hold the lion’s share of the world’s gold reserves, according to the World Gold Council’s International Financial Statistics. Of course, many nations will have new gold reserve data in 2012. And some of the data remained unchanged from prior months. Our aim here is to show which nations probably are increasing or lowering their gold reserves into 2012 and why.

The European credit crisis and emerging market weakness are what is likely behind central banks’ demand. Total gold demand rose 6% in the third quarter from a year earlier to 1,053.9 tonnes. This equates to roughly $57.7 billion — an all-time high in value terms. Investment was the large driver for increased gold demand, while jewelry demand was soft.

These are The 13 Countries That own The World’s Gold.

13) Venezuela holds 365.8 tonnes.
Venezuela increased its gold reserves by nearly 5%. Hugo Chavez may be no friend to the United States, but oil sales and business nationalization (or seizure) has continued to add more wealth to the nation’s government. Venezuela’s population is only 27 million and it is the sole Latin American country among the top nations holding gold. In 2010, Venezuela bought 3.1 tonnes, according to the World Gold Council. That’s after buying 4.1 tonnes locally in 2009. Venezuela has continued adding gold, and if history is an indicator it is likely to keep adding gold.

12) Portugal holds 382.5 tonnes.
Surprisingly, one of the PIIGS nations (Portugal, Italy, Ireland, Greece, Spain), Portugal, is also a top holder of gold. The European nation has a population of almost 11 million people. Does this go back to the days of its empire building ambitions, or is it because the nation was able to remain neutral in World War II? If Portugal is really in such dire straights, perhaps the Europeans could start demanding that Portugal pledge some of its gold reserves to bolster its finances. Portugal has already been a part of the prior Central Bank Gold Agreement as a seller in recent years, so it seems logical that the nation would be selling to hold up on its debt and entitlement obligations.

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11) Taiwan holds 423.6 tonnes.
Taiwan is another surprise as one of the world’s largest gold holders. It has a vast electronics sector, and maybe its high gold holdings help it stay financially relevant in its long ongoing confrontation with China. The nation is already considered wealthier than many neighboring countries on a per capita basis. The accumulation of gold by China makes it unlikely Taiwan would sell much gold now.

10) India holds 557.7 tonnes.
India’s gold holdings are still officially the same as they were at the beginning of the year, but it seems likely that it will increase its central bank holdings. The nation has about 1.2 billion people and its economy is growing — even though the government has fought inflation in 2011. Gold is entrenched in Indian culture that India is likely to continue accumulating more gold. Almost one-third of the world’s jewelry demand comes from India, and the country acquired 200 tonnes of the IMF gold sales in late-2010. India would seem to be a buyer of gold not just in 2012, but in the years ahead.

9) The Netherlands holds 612.5 tonnes.
Another fairly small nation with only 16.6 million people is ranked as a top holder of gold. The nation used to hold even more gold but it was a seller of gold from at least 2003 to 2008 under the Central Bank Gold Agreement in Europe. Maybe Holland could help to create a Dutch-led bailout for the PIIGS in Europe. The country’s gold holdings seem unlikely to change very much in 2012.

8 ) Japan holds 765.2 tonnes.
Japan has had to deal with two decades of a sluggish economy and its currency is currently considered a safe-haven for international investors. The Japanese people are known for keeping cash under their mattresses. The yen feels inflated with its huge debt-to-GDP and no growth. Prices for Japanese goods are getting too expensive for foreigners due to the strength of the Yen. The country is also still recovering from its tsunami and nuclear incident from earlier in 2011. Perhaps Japan will have proven to be a seller in 2011 rather than trying to bolster its foreign currency reserves. If not, it should be.

7) Russia holds 851.5 tonnes.
Russia has been gobbling up gold to bolster the ruble in the past and this appears to be the case this year as well. The new figure of 851.5 tonnes of gold compares to a previous figure earlier this year of 784.1 tonnes. The council had also noted earlier that Russia accumulated some 120 tonnes during the first 10 months of 2010, and that was after adding over 100 tonnes in 2009 and almost 70 tonnes in 2007. The new figure was due to increased purchases after the prior cut-off date. With Russia having vast oil and commodity reserves and with Russia aiming to increase its clout in the world as a financial powerhouse, it seems a shoe-in that it will have proven itself as a buyer of gold into 2012.

6) Switzerland holds 1,040.1 tonnes.
Switzerland already had to take measures earlier this year to halt the appreciation of the Swiss franc. It is hard to imagine that the nation would be buying gold to prop up its currency even after considering reports in recent years that it ran out of places to securely store gold. Switzerland sold gold under the Central Bank Gold Agreement from 2003 to 2008 before the great gold rush. With a mere 7.6 million people, how much gold does the nation really need? This country could easily lighten up on its gold reserves without its benchmark currency status being challenged.

5) China holds 1,054.1 tonnes.
China has added and added to its gold reserves. There is no reason to expect that to abate, particularly after Barron’s pointed that China is seeking a reserve currency status in the generation ahead. China has a population of 1.3 billion people and a fast-growing economy. The country also bought more than 450 tonnes of gold from 2003 to 2009 and 200 tonnes or more during 2010. With the pressure to get away from the dollar peg, assuring the value of the yuan only leaves the purchase of gold or other hard assets.

4) France holds 2,435.4 tonnes.
The French are not in the same boat as Italy and the rest of the PIIGS, but predicting what will happen with France’s gold reserves is very difficult. With a debt rating downgrade possibly coming down the pipe, France is the second largest foundation of the euro and of the European Union. The nation was part of the Central Bank Gold Agreement as a seller, but this was all before the major run-up in gold and before its own finances have come under question during the European debt crisis. It seems that more light selling is expected, although maybe the nation needs more hard assets as a reserve.

3) Italy holds 2,451.8 tonnes.
Italy was in the Central Bank Gold Agreements as a seller, but now it is the largest concern of Europe and of the PIIGS. It would seem that the Italians are unlikely to sell off their gold reserves. However, it is also likely that to fend off weakness some would argue for asset pledges. The nation has a new government and its economic growth is expected to be limited at best. Releasing gold might address some of Italy’s budget gaps and economic problems. Because Italy’s debt problems are quite large, it is likely that it would be a gold seller into 2012. If not, perhaps pledging those holdings is a runner-up scenario.

2) Germany holds 3,401.8 tonnes.
Germany remains the foundation of the European Union and of the euro. The nation was a seller of gold for coins under the Central Bank Gold Agreements from at least 2003 to 2008, but the sales were not really enough to put a serious dent in its gold reserves. It is hard to see Germany being a buyer of gold, but it likely cannot be a large seller either because it is the largest foundation of the euro. Selling too much gold could further pressure the troubled euro. Still, euro bailout funds have to come from somewhere and Germany could sell some additional gold without challenging its No.2 position among the nations holding gold reserves.

1) United States holds 8,133.5 tonnes.
The U.S. has already lost its prized AAA credit rating and it has magically created a vast amount of dollars to support the bailouts and stimulus packages. The U.S. could always try unloading some gold to fight future commodity price pressures, but the U.S. has now reached the point of leverage and deficits that it has to hold hard assets to fend off another challenge to the dollar as the world’s top reserve currency. Any gold sales today would likely have to be countered by large gold purchases in the future.

Looking from 2011 to 2012, Central Banks, Investment and More
The International Financial Statistics on the World Gold Council’s November report shows that the IMF holds 2,814 tonnes of gold. This technically puts the IMF somewhere between Germany and Italy. If the IMF is going to support bailouts and stabilization efforts, it is easy to consider where that money will come from. After all, the IMF cannot exactly print currency. The IMF’s Executive Board approved the sale of 403.3 tonnes in September 2009, which came to about one-eighth of its total gold holdings at the time.

The European Central Bank had some 502.1 tonnes of gold, according to the same November report. This is more than Taiwan, but less than India.

There are some key statistics to consider as 2011 comes to an end. Investment demand rose 33% from a year ago to 468.1 tonnes in the third quarter, worth about $25.6 billion. Central bank demand in the third quarter added 148.4 tonnes, an obvious effort to support currencies and credit ratings.

The world gold supply was up only 2% to 1,034.4 tonnes in the third quarter over a year earlier. Mine production was up 5% to 746.2 tonnes, while recycling activity was up 13% to 379.1 tonnes.

The investment segment showed that ETFs and investments accounted for 77.6 tonnes, but this was dwarfed by actual gold bars at 294.2 tonnes. Official coins came in a close third place at 76.2 tonnes and another 20 tonnes were for medals and imitation coins. European investment demand reached a record quarterly value of 4.6 billion Euros for 118.1 tonnes, a gain of 13%.

Also, watch Chindia. Chinese jewellery demand was 13% higher year-on-year at 131.0 tonnes; China’s investment demand for gold bars and coins rose 24% to 60.2 tonnes. Indian jewellery demand was down 26% in its seasonally slow quarter and it was compounded by high inflation and gold price volatility, although yearly demand at the end of September was called “very close to the record levels seen in 2010.”

If you tally up the top 15 entities here, the total is close to 26,000 tonnes of gold before counting any of the ETF products. The total tonnes of gold reserves from the International Financial Statistics cited by the World Gold Council is 30,708.3 tonnes. The SPDR Gold Trust (NYSE: GLD) lists some 1,277.36 tonnes worth over $71.5 billion today, but that is live data rather than just third quarter data released by the World Gold Council.

JON C. OGG

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