Malta’s gold reserves sank to a 23-year low in July this year, the Central Bank’s latest figures show, leaving the country with one less safeguard that can ease financial pressures on the government’s purse in times of crisis.

In January, Malta’s gold reserves were valued at €3.2 million. By July, most of those reserves were sold off, leaving Malta’s Central Bank with just €82,384 in gold reserves, the lowest since at least 1999. The Central Bank’s publicly accessible archives do not go back any further than that year.

When asked to explain what motivated the sell-off, a spokesperson for the Central Bank told The Shift that gold “is held by the Central Bank and invested for tactical purposes”, refusing to elaborate on specific reasons.

“Such holdings vary over time depending on market trends and changes in outlook based on fundamental and technical analysis. The Bank’s investment portfolio held as at 31 December 2021 had a value of €2.1 billion. The contribution passed on to the government’s budget each year is taken from the profit made by the Bank, which largely depends on the proceeds from the Bank’s financial assets, including those from gold,” the spokesperson said.

“The Bank, through decisions taken during the monthly meetings of its Investments Policy Committee, from time to time undertakes purchases and sales of its financial assets, including sovereign bonds and gold, within the established parameters set in the Annual Strategic Asset Allocation Exercise approved by the Bank’s Board of Directors,” the spokesperson added.

According to an economist consulted by The Shift, it is possible that the government sought to sell off almost all of Malta’s gold reserves to shore up its reserve of other assets, taking advantage of a significant increase in gold prices over the last two years, or as a way of increasing revenue without having to raise taxes.

A look at Malta’s gold reserves between 2008 and 2022 shows a peak in 2020. At the beginning of that year, right before the COVID-19 pandemic, Malta’s reserves stood at €23.7 million.

Central Bank data showing the price of gold and the amount owned by the Maltese government is also being reproduced below for reference in two separate charts – one displaying the data for the period between 1999 and 2007 and another for the period between 2008 and 2022.

The data was sourced from the Central Bank’s annual reports, which include balance sheets referring to Malta’s gold reserves. The reports preceding 2008 provided data for Malta’s reserves at the end of the year.

Following Malta’s decision to join the Eurozone in 2008, balance sheets were shifted to focus on the beginning of the year, as reproduced below.

When asked for possible motivations for selling off almost all of Malta’s reserve gold supply, an economist consulted by The Shift described gold reserves as “fire-fighting tools” meant to deal with external pressures.

“To begin with, these fluctuations do not get enough attention. A country normally keeps gold reserves so that it can afford to buy other types of currency, or otherwise using that gold to buy more of its own currency,” the economist said.

“It does not necessarily follow that bad times are to come, but it can certainly be interpreted that way,” he added, suggesting that one convenient aspect of selling off gold reserves is that it allows a government to generate revenue without inflaming public opinion, unlike other less popular options like raising taxes.

“While it is not necessarily bad to have low gold reserves, it does mean you have less with which to absorb external shocks. In the same way, one could argue that before, we may have had too much.”

Former Nationalist MP Jason Azzopardi, one of the first to shed light on the plummeting reserves, claimed that the government had sold off gold reserves to pay back interest on public debt, which is skyrocketing.

When factoring in the aftermath of the COVID pandemic, the ongoing shocks from the effects of the Russian invasion of Ukraine, and almost a decade of government largesse and corruption for which hardly anyone has been held accountable, having low gold reserves means the government has one less resource it can resort to if needed.

So while the sell-off could have been motivated by a need to deal with external pressures, buying up huge quantities of gold, as Malta had done in 2020 and 2008, could have been done out of “concern or uncertainty about the future”, according to the economist.

The major sell-off that has been ongoing for the last two years coincided with an increase in the price of gold over the same period. While 100kg of gold would have set you back around €4.6 million in 2020, the price for the same amount stood at just below €5.2 million at the beginning of this year.

During the financial crisis of 2008, Malta had €9.4 million in gold reserves, two-thirds of which were gradually sold off over the following two years. By 2010, Malta had €3.7 million at its disposal, which increased to €13.4 million in 2012.

At a time when Malta’s gold reserves are depleted, public debt is expected to spiral toward €9 billion within a few weeks. Earlier on Thursday, Finance Minister Clyde Caruana told journalists that around €100 million in cost-cutting measures had been identified, although the government has refused to state where the cuts have been made. Caruana also said another €100 million need to be identified for a further chop.