USA and Gold

We don’t need to explain what the United States is. Everyone knows that it is the world’s leading economy and military power, one of the wealthiest and the freest places on earth. However, its links to gold are less known. So let’s analyze what is America’s impact on the gold market.

U.S. Gold Reserves

The United States has the largest gold reserves in the world. According to the World Gold Council, it held 8,133.5 tons of bullion in May 2018. It was almost as many reserves as the next three largest countries combined (Germany, Italy and France). Gold constitutes about 75 percent of the U.S. total foreign reserves. These enormous holdings result from the WWII and the Bretton Woods system, in which the U.S. offered to house other countries’ gold in exchange for dollars.

U.S. Gold Production, Exports and Imports

America is also one of the biggest producers of gold. In 2016, the country produced 209 tons of bullion, which gave the U.S. fourth position in the world (after China, Australia and Russia). Hence, it should not be surprising that the United States is the top exporter of gold. In 2015, the country exported the yellow metal worth $19.billion, which secured the fourth position. However, America is also the sixth largest importer of gold – in 2015 it imported gold worth $10.8 billion.  

U.S. Gold Market

But what is key is that the U.S. gold market is, together with the London gold market, the most important center for gold trading. Although the U.S. has a well-developed OTC spot market for gold, it primarily trades paper gold, i.e. gold derivatives (futures and options) and ETFs. Indeed, American COMEX is the largest gold futures exchange in the world. As the futures market tends to play a more important role in incorporating new information about the value of gold”, the price of gold is mainly set in New York. In other words, although the gold market is theoretically global, in practice it remains bi-polar, with the dominant role of the U.S. futures markets in the price discovery process.

U.S. Economy and Gold

When the U.S. sneezes, the world catches a cold. That phrase means that what happens in America affects the rest of the world, be it for good or bad (the Great Depression or the Great Recession are the excellent examples). It implies that the U.S. developments are crucial for the gold market. Indeed, the U.S. real interest rates are one of the most important drivers of the gold prices. The same applies also to the American currency, which is the major gold’s competitor. The U.S. dollar is the world’s reserve currency, in which gold is denominated, so everything that influences the value of greenback (i.e., inflation or the changes in the risk premium) has an effect on the gold market as well.