Spain has lost 3.8 billion euros due to a 2007 Solbes decision

In 2007 Pedro Solbes made a financial decision that was criticized, fourteen years later we can be very clear that it was a serious mistake on his part that has cost all Spaniards a lot of money. Around 3.8 billion euros.

It was decided to sell 32% of the gold reserves of the Bank of Spain, justifying that gold was no longer a profitable investment and that the objective should be to maximize the profitability of the reserves. This amounted to 4.3 million troy ounces, or 133.7 millions of tons. At that time an ounce of gold was trading at 669 euros, after the outbreak of the credit crisis, in 2011 the value of gold had tripled.

Currently the price of an ounce is around € 1,564.94, which means that they would be valued at 6,729 million euros, when at that time they were sold at 2,876 million euros, with a profit of 2,180 million euros. That is, if they had not been sold, the value would be approximately 3.853 million euros more than what was obtained from the sale in 2007.

Perhaps the benefit obtained from investing in alternative assets (fixed income) in 2007 should be discounted, but with the credit crisis and subsequent issues that have led to the issuance of bonds at negative interest, I doubt that these have been even close to the appreciation that we would have obtained by maintaining the gold reserves.

In addition, this should be added to the fact that Spain was a country with not very large gold reserves, because much was used in the Civil War, the effect of lack of credibility in the Spanish economy it was possibly greater than it would have been for another country.

Central bank gold reserves

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The Gospel of Saint Matthew tells how after the birth of Jesus of Nazareth three wise men from the East came to offer him gold, incense and myrrh. If incense is related to many religious rituals and would be his divine side, gold was the offering as king of kings, because since long before the Roman Empire it was part of the sovereignty of the monarchs.

Central Banks around the world maintain gold reserves, at the time these were those that guaranteed the currency of the countries, in fact the US dollar was convertible into gold by the Federal Reserve until 1971, when the administration of Nixon ceased said convertibility of the dollar and abandonment of the gold standard, something that happens with practically all currencies. Today we rely on fiat money, be it euros, dollars, reminbis or yen.

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Central banks continue to hold their gold reserves even though their currencies are not exchangeable for gold. The US Federal Reserve is the bank with the largest deposits, but it also holds deposits from other nations in Fort Knox. The gold from the state reserves tends to give an argument to the fiction about someone who wants to steal it, for example Goldfinger, Die Hard with a Vengeance (Die Hard with a Vengeance (Die Hard with a Vengeance), or the second season of La Casa de Papel . ** And why do central banks hold gold? ** Well, let’s say it’s part of your reserves, some because they are obliged to do so (such as the Swiss central bank), others comment that it allows them to diversify assets, it does not have counterparty risk (as foreign currencies and bonds do), it could serve in an emergency, not it deteriorates with inflation or with time. I mean, it looks like they are going to hold gold in their reserves for a long time.

Other countries did the same?

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What could be assumed is that the gold reserves are almost static, but the truth is that central banks vary their reserves. However, the media tend to show part of the information and sometimes in a contradictory way, since sometimes these movements (especially sales), do not like to communicate them much.

During the past pandemic of 2020, Turkey sold 22.3 tons of gold, Uzbekistan sold 34.9 tons compared to the 141 tons it bought in 2019. The Bank of India bought 6.8 tons of gold, the United Arab Emirates bought 7.4 tons and Qatar bought 6.2 tons.

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That is, central banks increase or decrease their reserves as they deem interesting and necessary at that time. During 2021 the largest buyers have been Thailand, Hungary, Brazil, Uzbekistan and India, the largest sellers have been Turkey, the Philippines, Russia, Germany and the United Arab Emirates. Between 1999 and 2002 the United Kingdom sold part of its gold reserves, since it was at all-time lows. This decision of Gordon Brown, who was the “Chancellor of the Exchequer” or Minister of Finance, it is estimated that it may have cost the British seven billion pounds.

Between 1993 and 2014, the countries that bought the most gold were Russia, China, Germany, Turkey, Italy, India, Saudi Arabia, the Philippines and Thailand, the ones that sold the most Malaysia, Sweden, Argentina, France, Portugal, Australia, Canada, Spain, United Kingdom, Austria, Holland, Belgium and Switzerland.

Is it a good idea to sell or buy gold by central banks? Well it depends on how we see it. In my opinion I think it depends on the country, does it make sense that Germany has the second largest reserves in the world, not being the second economy? Possibly not. But I don’t think the sale of gold in 2007 by Zapatero’s finance minister was a good idea either.

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