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Serbia: Closest Country in Europe to the Gold Standard

According to the data recently published by the World Gold Council (WGC for short), Serbia gold reserves of 38.1 tons in gold bullions make it the leading Balkan economy in terms of gold reserves. Stored in the National Bank of Serbia, they secure the nation’s position as the regional gold reserve leader.

Gold in Serbia

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According to its corporate media office, the Chinese mining giant Zijin operating the largest smelting plant and copper mine in Serbia has sold 5.74 tons of gold to the National Bank of Serbia within the last 3.5 years. The Zilin gold output sold and delivered in Serbia within the last 6 months totaled 852 kilos.

Serbia’s position in the global gold reserve rating

With as much as 38.1 tonnes of gold bullions stored in the Central Bank treasury, Serbia is the regional leader and holds the 54th position globally. As of 2016, due to Serbia gold reserves of 17.9 tons held in the nation’s treasury Serbia ranked 62 in the world in gold reserves. Relying on Zijin representatives, Serbia topped regional leader lists even then. The country manages to keep its leading position in gold reserve ratings and has successfully lengthened the lead over its competitors.

Nation’s spot in the Balkan gold reserve ranking

In 2022, Serbia tops the Balkan gold reserve ratings as before. North Macedonia with its 6.9 ton gold reserve follows. Slovenia (3.2 tons) and Bosnia and Herzegovina (3 tons) take the 3rd and the 4th positions. Montenegro with a 1.09 ton gold reserve ranks last, while Croatia is not included. 


Is Serbia sticking to the gold standard in Europe?

The gold standard, in Europe or elsewhere, is an outdated global monetary system, with the national unit of account rate based on a fixed gold quantity. It is since the ancient times that gold had been used as a universally accepted unit of account. Gold is easy to identify, its density is not difficult to determine, and its acoustic signature is unmistakable. Hence, forging gold is challenging and rare. That said, world gold extraction is kept low as before for the precious metal not to depreciate too quickly.

Last year, Serbia obliged its National Bank to transfer all Serbia gold reserves from Bern (Switzerland) to Belgrade. As things stand, Serbia gold reserves are the largest in the Balkan region. Does it mean Serbia is going back to the gold standard? It is not the case, yet with Serbia gold reserves of в 38.1 tons the country is free to safely exchange its gold for Serbia currency to issue dinars (a.k.a. Serbia currency) in large amounts later on. Serbia currency emission in this case does not imply the country is likely to launch a printing press with inflation acceleration and Serbia currency depreciation inevitably following.

National strategy to combat inflation by increasing Serbia gold reserves twice within the last 5 years

It has been for thousands of years that mankind has known gold and used it to store value. Heavily used in jewelry and electronics, gold provides for even higher value. Unlike fiat currencies, gold supply is limited.

Therefore, gold has long been considered a safe investment method and an inflation hedge. This is why the country could have a point with constantly increasing Serbia gold reserves. Within the last 5 years, Serbia gold reserves in the country’s treasury have almost doubled.

Historically, gold was used as an instrument to hedge inflation risks.

In mid-2022, the inflation rate hit an all-time high in the USA. It was in the 1970s and early 1980s that the US faced runaway inflation last. In hindsight, it is clear why investors considered gold to be their inflation hedge back then. With oil prices spiraling and energy resources in short supply, the average annual US inflation made up around 8.8% since 1973 till 1979. With its striking annual percentage yield of 35%, gold was believed to be their primary inflation hedge by investors within the said 6-year period.

After that, the gold output lagged behind. Since 1980 till 1984, annual inflation averaged 6.5%, with gold prices sagging by 10% per annum. Not only did gold returns fall behind the inflation rate but also were behind the real estate market, commodities, and S&P 500 index. With annual inflation averaging 4.6% since 1988 till 1991, gold prices crumbled 7.6% per annum on average.

With inflation hedges in place, gold prices usually go up alongside with consumer prices. Yet, at the lowest inflation points in the US, investors had to go with negative gold returns.

In April 2021, Consumer Price Index (a.k.a. CPI) commonly used to measure inflation in the US grew by 4.2% YoY. This is the 1st incremental CPI over 4% per annum since 2008. From then onwards, CPI in the US has grown by 6.8% per annum on average. Within the same timeframe, average gold price increase amounted to 1% p.a. Weak gold price performance seen lately demonstrates gold limitations when used as an inflation hedge. 

Within nearly 2 years, gold prices have in fact been decreasing, with inflation staying at a decades-long high. Some studies have found gold to be an effective inflation hedge provided however it has been used for a very long period above 100 years in that capacity.

Within the last 2 years, gold might not have been the best inflation hedge yet has well outperformed the other popular inflation hedge known as crypto currencies, with bitcoins being an example thereof.

According to some crypto investors, crypto currency is the best inflation hedge as its supply is limited. Where they wish so, central banks around the globe can increase money supply and miners can mine more gold. With bitcoins, the trick does not work as the total number thereof (likewise, of certain other crypto currencies) is limited and it is supposed to stay this way.

Bitcoin is oftentimes claimed to be digital gold. The reality is, recent Bitcoin performance as an instrument to hedge inflation has been awful. Ever since the inflation started escalating in the US in 2021, the BTC value has plunged by 47% YoY.

Hence, the course Serbia has taken to increase gold reserves at its National Bank is perfectly correct.

Gold trading in Serbia

On the news of gold reserve accrual and inflation escalation, private investors increase their activities related to gold trading in Serbia. To secure their savings, households purchase more gold than before thus contributing to the gold trading in Serbia and higher volumes thereof.

It is true that gold trading in Serbia is profitable both mid-term and long-term. Within 9 years, the price per 1 gram of gold in Serbia has increased by 96% amounting to EUR 56.2. Currently, a 10-gram gold bullion will cost you as much as RSD 77,142.

The current global geopolitical uncertainty is another driver behind the growth of gold trading in Serbia. With the Balkan region and the Eastern Europe being close neighbors, it is small wonder.

In 2020, the market for gold trading in Serbia amounted to approximately EUR 60,000,000. According to expert forecasts, the market for gold trading in Serbia will have reached EUR 200,000,000 by YE 2022. This signifies growth of over 100% per annum within a 2-year period. It is for a good reason that locals took interest in gold trading in Serbia, as investments of the kind are bound with passive income. Over the past year, the price of gold went up by 12% on the market for gold trading in Serbia. Unwilling to keep their EUR savings in banks, the Serbs are eagerly converting them to gold.

Gold is reported to be in short supply on the market for gold trading in Serbia already, with mining and smelting plants failing to supply enough gold bullions.

Cooperation between Serbia and gold producer Zijin

According to economic experts and bank analysts, gold remains the best and the safest investment, especially in troubled times like the ones we live in. Over the past 6 years, Serbia has significantly increased its gold reserves and moved 8 lines up in the World Gold Council list.

Serbia ranks 54 in the world gold producer rating, with nearly all that gold mined at ex-RTB Bor currently known as Serbia Zijin Bor Copper.  

In Bor, gold has been mined since the copper mining and smelting complex was established there in 1903. Official stats on extracted gold quantities have been available since 1938. Since the said 1938 till December 2018, the total of 160 tons of gold has been mined at ex-RTB Bor, officials representing Zijin Copper reported to the Danas newspaper.

They claim before 1938, gold extraction records were kept by the French who owned the gold mine.  Back then, the French company was free to dispose of precious metals, gold included, and trade in them. Till 1935, 16 tons of gold are said to have been brought out of the Bor gold mine.

Things changed in 1934. It was then that the National Bank of Yugoslavia received the right to purchase gold at LSE prices under the Precious Metals Control Ordinance.

As provided for under the Serbian laws, even today all the gold mined in Serbia shall be first offered to the country’s National Bank. 

“The Serbian legislation stipulates that all gold extracted in Serbia shall be first offered to the Serbian National Bank. If the latter refuses to purchase gold at the established market price, Zijin may request to export it. So far, nothing like this has ever happened, which means all the gold we mine shall remain in Serbia”, – Zijin declared.

This means, Serbia Zijin Bor Copper that purchased over 63% of ex-RTB Bor shares in December 2018 after the strategic partnership agreement had been made with Serbia shall first offer extracted gold to the National Bank of Serbia.

In 3.5 years, the Chinese company sold 5,742 kilos of gold to the National Bank of Serbia and since earlier this year the amount of gold sold made up 852 kilos.

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