Under QT, the ECB shed €3.1 trillion in bonds and loans. Separately, it wrote up its gold assets by €409 billion, or by 68%, to reflect soaring gold prices.
By Wolf Richter for WOLF STREET.
The ECB values its holdings of “gold and gold receivables” at market prices in euros. Every quarter, it adjusts these holdings to market value. In recent years, the price of gold, expressed in euros, has soared, and therefore the ECB’s balance-sheet account “gold and gold receivables” has soared.
At the end of Q1, the ECB wrote up its gold holdings by another €130 billion to €1.00 trillion. Back on the eve of QT at the end of 2022, its gold holdings amounted to €593 billion. Mark-to-market adjustments increased its holdings now by €409 billion, or by 68%.
Note that this mark-to-market of its gold holdings is just an adjustment on paper, does not involve transactions, and has no impact on the markets. Conversely, when the price of gold dropped, the ECB adjusted the value of its holdings down to market, such as by 37% between 2012 and 2014:
The account “gold and gold receivables” is an asset on the ECB’s balance sheet, and these mark-to-market adjustments added $409 billion to its total assets since the end of 2022.
At the same time, under its QT program, the ECB has shed €3.09 trillion of its QE assets (bonds and loans).
This paper-write-up of its gold holdings by €409 billion since QT began explains largely why total assets have dropped less (-€2.54 trillion) than its QT assets (-€3.09 trillion).
Bond and Loan QT progresses: -€3.09 trillion
The ECB had two QE programs:
- Loans to banks: peak in June 2021 at €2.21 trillion;
- Bond buying programs APP and PEPP: peak in June 2022 at €4.96 trillion (mostly government securities and some private-sector securities).
Since the beginning of QT in late 2022, the ECB accelerated the QT program in increments.
The loans to banks under its various loan programs are down to near-zero. The ECB has now shed €2.17 trillion of its loans, with just €24 billion left on its balance sheet, below where they’d been in 2004. So that part of QT is finished (blue in the chart below).
And in December 2024, it stepped away from the bond market entirely by removing the last remaining cap on the monthly roll-off, no longer replacing any maturing bonds, and just letting bonds roll off the balance sheet as they mature.
So far this year, the bond roll-off has occurred at these rates, reflecting the mounts of bonds that matured that month:
- January: -€48 billion
- February: -€62 billion
- March: -€62 billion
- April: -€49 billion.
And it has shed 18.5% of its bond holdings, or €920 billion, bringing them to €4.04 trillion, lowest since April 2021 (red).
The chart below shows the ECB’s holdings of gold (yellow), loans (blue), bonds (red), and total assets (dotted green line). We can see what has been happening since the end of 2022:
The ECB adjusted the value of its gold holdings up by €409 billion to €1.0 trillion to mark them to market, while it shed €3.1 trillion in QE assets, with loans dropping by €2.17 trillion to near-zero; and with bonds dropping by nearly €1 trillion to €4.0 trillion
Shedding €3.09 trillion ($3.49 trillion) in QE assets puts the ECB way ahead of the Fed, which has shed $2.26 trillion in assets under its QT program so far. Combined, they have shed $5.75 trillion in assets under their QT programs. And the Bank of Japan started QT in 2024 and has accelerated its QT this year, two years behind the Fed and the ECB. And smaller central banks, including the Bank of Canada, have also substantially reduced their assets under their QT programs.
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Amazingly so.
Wolf, i really appreciate your articles about ECB balance sheet. While i occasionally look up some numbers myself on the ECB’s website, i never pay attention to things like that. So thanks for the insights.
The ECP from my perspective should not be viewed as toothless even though the American free ride is threatened.
They have to pay for their own defense.
Their numerous tariffs, whether by regulation or direct, that allow them to run a 300+billion trade surplus with the hapless US citizens. They are protesting that access to the “free market” is no longer free in the sense that the European’s understand. America should continue too pick up the tab.
Physical gold can be captured. It requires an infrastructure to protect it. Like an Army and the hierarchy of Police presence. All paid for by the slogs who can’t afford to own an inert asset like gold.
B/S shrinkage just in time to load up for that imminent recession.
/s
Disagree – the Fed tightening unfortunately has been accompanied by massive money printing by treasury.
M2 is back at 2022 peak, and it does not even consider crypto in circulation
BS. The Treasury doesn’t “print” money. It “borrows” money from others via debt sales, and it “collects” money from others via taxes. Only the Fed can “print” money, but since mid-2022 the Fed has been doing the opposite, it has been un-printing money via $2.26 trillion in QT.
M2 is an outdated garbage measure because of the accounts it includes and excludes. We’ve discussed this here many times, including how it deals with the Fed’s ON RRPs (it doesn’t, lol).
@wolf – What is the alternative to M2 ? Is there any article which explains why M2 is bad and what to use instead (and why) ?
The link below tells you what is included in M1 (footnote #1) and M2 (footnote #2), and note among the problems and inconsistencies, that it includes CDs of less than $100,000, but does not include CDs over $100,000. Not including CDs of over $100,000 is an arbitrary distinction from decades ago.
https://www.federalreserve.gov/releases/h6/current/default.htm
A long-term growing economy creates money naturally. A declining economy over the longer term destroys money. That’s how it works. The problem is artificially created money that central banks produce via their balance sheets (QE). So you just look at the central bank balance sheets to see what is going on, which is what I’m doing here with the ECB, and in my Fed articles, and in my BOJ articles, and the others I have covered.
The whole concept of “money supply” is kind of silly. People cannot even agree on what “money” is. For M1 and M2, “money” is a specific group of accounts, see link above. It’s not “money” in general. The idea was way back to track accounts that have cash in them that can be readily deployed into the economy, such as checking accounts and savings accounts, and other accounts. And then gold bugs have made M2 their rallying cry to promote gold without even having a clue what M2 is.
Agree – but what we were taught in MBA days is amount of Fed cash in circulation has to be multiplied by a money multiplier factor. This factor denotes the speed of money movement and can be accelerated by low SLR or newer money token.
What i dont understand is if QT has reduced 25% cash in circulation, how can stock market and asset market keep going up
Well the Treasury “could” mint the infamous Trillion Dollar coin
kile,
But what is it going to DO with that coin? Put it at the Smithsonian for people to look at? It cannot pay for anything with it. But what it can do in fantasy-theory is give it to the Fed, and ask the Fed to print $1 trillion in return and deposit that $1 trillion in the TGA. It’s the Fed would have to print the money.
M2 is mud pie. No money stock figure standing alone is adequate as a guidepost for monetary policy. The “demand for money” has varied 2x that of the money stock over a 50-year period.
Chairman Jerome Powell destroyed deposit classifications when he eliminated the 6 withdrawal restrictions on savings accounts in April 2020.
“This change means that savings deposits have had a similar regulatory definition and the same liquidity characteristics as the “TRANSACTION ACCOUNTS” reported as “Other checkable deposits” on the H.6 statistical release since the change to Regulation D.”
WSJ 6/28/1983: “The experimental measures are designed to resolve some of the confusion by isolating money intended for spending, from the money held as savings. The distinction is important because only money that is spent-so-called “true money” – influences prices and inflation”
Thanks, Wolf,
Sometimes you raise questions for me. In this instance the answers were:
Central banks collectively hold 37,755 metric tons of gold currently valued at just over $4T.
The value of the 19.6 billion bitcoins currently mined is just north of $2T
Funny how crypto folks say “mining” for “printing” cryptos out of nothing. They despise central banks for “printing” money out of nothing but don’t despise themselves for “printing” cryptos out of nothing? Look, I’m just having fun here.
Along the same lines of shock that would be expected when an old man contemplates the magnitude of it without checking it out using a logarithm function to absorb the hysteria.
Just because we should talk about the frontal assault by an American aristocracy to impose an AI infrastructure on the American society. The selling point seems to be that ” AI is beneficial for the slogs”
who ask for more clarification about the emergence of an Archie Bunker, opinionated that without analog safeguards, often demonstrates anti-social behavior
AI has been trained to accomplish an outcome. Not an impute but the expected result.
Great article. I had no idea that the ECB held gold on their BS and carried it at market. I wonder how much of the ECB’s gold is actually vaulted in the ECB’s physical custody ?
Regarding QT. Am I right in thinking that the FED sheds assets by letting them roll off ?
1) Does this mean they present the maturing security to the Treasury and then simultaneously (in a figurative sense), the Treasury sells new debt into the market equal to the maturity value of the security the FED presents.
2) The market gives Treasury cash in exchange for the new Bond
3) Treasury remits the cash to the FED to settle the maturity
4) The “cash” then either disappears into the null address at the FED or is remitted back to the Treasury ?
It seems like this should be shrinking the money supply (which seems like a good move since it grew by a substantial amount in the previous QE.
But at the same time, can the buyers of the TBond then use that as collateral for new borrowing ?
We have a price history in Gold terms going back a good ways, so we can see in the Gold price a reasonably accurate measure of dollar debasement. We can’t see that at all for BitCoin.
For a long while BitCoin seemed to be correlated with the Nasdaq or Mag7. But now it seems somewhat delinked. I’m not at all sure what it represents other than a handy proxy for get-rich-quick impulses.
Everyone talks about BTC as the basis for a new, more modern gold standards. If that were the case, at some point we would have to peg some unit of BTC (a satoshi ? 1000th of a BTC) to a certain number of dollars (110) and then BTC would be used by the FED as a signal to hold the USD to that value of BTC – through interest rates and/or open market operations .
A problem will arise as the rate of BTC mining adds fewer and fewer BTC to the total stock of BTC. Then eventually we run out of new BTC all together at 21 million (in 2040 I think). Then BTC becomes a totally deflationary influence (if there were a real BTC standard).
I also have no sense of how much BTC has become a USD asset ?
All very interesting
i.e. the eurozone maintains solvency by debasing euro debt against their gold holdings. Additionally, the fudge for the european defence fund is to fund it through the establishment of a dedicated bank i.e. credit expansion (a ruse suggested by the British :) ).
but the world grows weary i think this time. the first signs of smoke coming from japanese bonds.
Gold is such a tiny little minuscule asset worth less than 1% of global assets and it has no financial relevance whatsoever.
LMFAO!
Feel free to send me all the gold you want! Silver too!
If it has “no financial relevance” why bother stockpiling the metal?
Approximate values, per Google/ other
Above Ground Gold: $21 T
S&P: $47 T
Crypto Market Cap: $3.3 T
Global GDP 2024: $110 T
My bank account: $6k
I’m not sure what is significant either.
“Then BTC becomes a totally deflationary influence”
Yeah, the entire post Bretton Woods history (including the very collapse of Bretton Woods itself) “show” that systemic danger of *deflation* is the thing to worry about.
(Eyes roll out of head, on to floor).
IRL, deflation is the monster under the bed Bernanke keeps scaring you with while he surgically removes your kidney with inflation).
“IRL, deflation is the monster under the bed Bernanke keeps scaring you with while he surgically removes your kidney with inflation).”
Love it! Yes, you cannot spell eCONomics with the CON. With 8+ BILLION mouths to feed, and still growing. There is plenty of demand for all the very real things that sustain life AND make life worth living, Hence, there is plenty of demand. The ONLY way the planet experiences deflation is if all that demand (people) goes away….
Think about it people and hedge accordingly.
Wow, great questions that suggest you have made a bad bet like I did in 71, 74, etc.
Ain’t life a crap shoot for most of us.
DANF51. I think you skipped over something important between stages 1 and 3.
In stage 1, when the FRB is holding the debt, the interest is basically the government paying the interest to itself.
2) The market gives Treasury cash in exchange for the new Bond.
3) Treasury remits the cash to the FED to settle the maturity.
But when the FRB sells the bonds to the market, the interest becomes payable to someone else. Because the interest COMPOUNDS. It may not double every year, but it can become a problem, best explained by pennies doubling on a chess board:
The chessboard penny problem illustrates compound interest with a penny doubling on each square. Starting with one penny on the first square, the number doubles for each subsequent square. This doubling continues until all 64 squares are filled. The total number of pennies on the board becomes 18,446,744,073,709,551,615. That is one heck of a lot of pennies.
I don’t believe gold is going to play any role in reserves or balance sheet reporting. Recently I read where the BRICS are going to use gold holdings at 5 established banks for cross country/currency trading. The gold will be monitored and accounted for with blockchain technology. The trading country can either accept the other currency or gold. This will hurt the dollar.
No, it won’t hurt the US Dollar in the slightest.
Gold won’t hurt the dollar. Only hyperinflation will do that.
Like bitcoin, gold has questionable inherent value other than it’s one uncanny financial attribute of maintaining its relative value since Nixon stopped promising the ounce of gold was worth 32 dollars per ounce. A response to France to demand payment for the damage that the allied armies caused, in gold.
Gold has consistently maintained value for thousands of years, it’s not remotely comparable to Bitcoin and other such crypto which has a very short track record.
15 plus years of QE and the expansion of debt through PE and the foreign banks have ended up in so many areas of our asset base the amount is hard for me to understand.
The Treasury debt ? Trillions
Housing loans (though many paid with cash)
Commercial buildings debt (have not seen something from Wolf in last week but I’m sure will be forthcoming on his schedule)
Stock market
Bit Coin
Bond markets
Stock buybacks (Issue debt and buy their own stock)
These forces don’t just collapse the economy humming along fine as shown by Wolf durable goods undate)
I personally don’t want a collapse of our economy and a decline in asset prices because that’s deflation . Reasonable inflation I like the 2 percent and don’t start QE!
I don’t understand the purpose of marking the gold reserves to market price — especially, as Wolf indicated, this is just a “paper transaction” with no buying or selling involved.
On the other hand, I also don’t really understand why the U.S. gold reserve is still on the books at $42.222222222/oz. (I guess the best reason NOT to mark the gold reserve to market is to create distance between the concepts of “gold” and “money”?)
Probably the answer to the above is “politics” which is neither informative nor satisfying.
Gold at $42.22 per troy ounce is rather overpriced and comes out to around $675.00 per troy pound which is awfully expensive compared to nice fresh Australian lobster.
Your cognitive dissonance is astounding. Every lobsterman I know is happy to receive payment for that lobster in gold or silver. In fact, roughly the same amount of gold in 1929 buys the same lobster, in contrast to the amount of fiat required now.
LOL! Just tell everyone what bank you work for already!!!
DM: Elon Musk gives parting message to Trump as he officially quits DOGE and leaves White House after blasting new spending bill
Elon Musk has officially quit the Department of Government Efficiency and bid farewell to the White House just one day after he publicly split with President Donald Trump.
He has left the WH. That does not mean he “publicly split” with DT. It meant his 130 day tenure is up. Spoiler: a Doge team remains embedded, doing great work.
Wolf, very useful-informative article!
Thanks!
The problem that arises now is that some governors, so far a few in number, have started hinting at interest rates below neutral and even zero
@wolf. I think you meant 0.4 trillion in this article. Reduced from 1 trillion to 4.0 trillion doesn’t make sense. Keep up the good work! I learn a lot from your site.
Thought provoking article, Wolf. Thanks!
You said: “And in December 2024, it [ECB] stepped away from the bond market entirely by removing the last remaining cap on the monthly roll-off…”
I’ve been confused by the differential between Euro-zone government bond rates and U.S. Treasury rates. (e.g. Greece long bonds at 3.5% v. T bond at 5%.) I would have imagined that as the ECB “stepped away” from the market, a positive differential would have opened up.
Similar situation on Japan bond rates….
Also, will US Treasury/Fed someday mark gold/gold certificate holdings to market, and if yes, to what effect?
What goes up goes down, with respect to Gold. Assets have been great liquidity mops, I am sure long term Gold will continue its rise, but 37% decline “when the price of gold dropped, the ECB adjusted the value of its holdings down to market, such as by 37% between 2012 and 2014:” could easily replay from 25 to 27. When this whole asset bubble really breaks there will be few hiding places. Right now the Yen is the canary in the coal mine IMO, when it goes up risk goes off. Credit bubbles need more credit buyers. Long bond Rates are trending up and liquidity is going down! Ha, that’s ironic because I started this post with what goes up goes down. Every thing is in a cycle with a time duration. GDP beat, unemployment claims not so much. Futures last night were pointing to bull market frenzy and continuation of the bear market rally or to null and void the bear. it was sold! That rally from April 7 low of spy @ 481.8 may of topped at SPY 595.54 on April 19. Will see what the market does. Wolf’s data perspective helps the sleuths see the big economic picture and is very educational. Thanks!
The above comment was incorrect. May 19 is the high water mark for US equities. I actually prefer the wilshire 5000; it represents the total market cap of all US equities, each point equals 1 billion dollars. We had a double top on a weekly close in the willshire 5000 in December and Feb of 61.4 trillion in stock valuation. The Dax has been grabbing the liquidity lately, but we are all so correlated, synergistic effects. Like mountaineers roped up to each other. I imagine the expression collateral risk will become in vogue again. Excited to read PCE article tomorrow. PCE core YOY?