Gold Slides Toward $4,000 as Serbia's FX Reserves Fall
The NBS held 29.6 billion euros in gross reserves at the end of June, with the decisive blow coming from an 11.4 percent drop in the dollar price of gold.
- Gold fell toward $4,000 an ounce on July 16, to about $4,036, down 0.6 percent.
- The NBS held 29.6 billion euros in gross reserves at the end of June, down 273.2 million from May.
- The decisive blow was an 11.4 percent drop in the dollar price of gold, with negative net market effects of 474.9 million euros.
- Despite the fall in value, the quantity of gold hit a record 54,565 kilograms, about 20.9 percent of gross reserves.
Gold on the global market slipped toward the $4,000 an ounce threshold on July 16, to roughly $4,036, with a daily decline of 0.6 percent. The correction is continuing even as war tensions push crude oil higher, and that reversal in the precious-metals market has already left a measurable mark on the balance sheet of the National Bank of Serbia.
The NBS held gross foreign reserves of 29.6 billion euros at the end of June, 273.2 million euros less than at the end of May. It is the first monthly decline that stems not from debt repayment or currency-market intervention, but chiefly from the revaluation of assets held in gold and dollars.
Why did the fall in gold pull reserves down?
The answer lies in the structure of the reserves. Gold now accounts for about 20.9 percent of Serbia’s gross foreign reserves, so any sizeable move in its price shifts the overall figure directly. In June the dollar price of gold fell by roughly 11.4 percent, and that market loss outweighed the positive effects of inflows and interest. The NBS reported negative net market effects of 474.9 million euros, a figure that on its own exceeds the total monthly drop in reserves.
Two concepts that are easily confused need to be separated here: quantity and value. The amount of gold in the vault did not shrink; on the contrary, it reached a record 54,565 kilograms at the end of June. What fell was the book value of that same bullion, because it is carried at the market price on the balance-sheet date. In other words, Serbia holds more gold than ever, but on paper it is worth less than a month ago. When the price of gold rises, that same effect will work in reverse and lift the reserves.
How dangerous is the drop for stability?
For now, not very. Even after June’s decline, the reserves cover 6.8 months of imports of goods and services, more than double the adequacy standard of three months’ cover. It is one of the more comfortable coverage ratios in the region, and a reserve that still far exceeds the country’s short-term external obligations.
The key is to understand that the drop is a revaluation, not an outflow. No currency was spent or left the country; only the price at which the assets are measured has changed. The risk would turn serious only if the fall in gold hardened into a longer and deeper bear phase, or if it were joined by simultaneous capital outflows and pressure on the dinar. Neither of those conditions is met at present.
For a central bank that has systematically bought gold for years as insurance against geopolitical risk, June is a reminder that this insurance carries a cost in volatility. The same metal that shields reserves from dollar weakness can, when it enters a correction, temporarily reduce them. The decision to hold gold at around a fifth of reserves remains strategic, but from now on with a clearer price attached to the monthly swings.
If the correction toward $4,000 deepens through July and August, the next NBS balance sheet could show another downward revaluation. The question for investors, and for the central bank itself, is simple: is this a pause in gold’s long-term climb or the start of a longer market turn, and how much of that path is Serbia prepared to weather without changing the structure of its reserves?
