RUSSIA BUYS A RECORD AMOUNT OF GOLD

HomeNewsRUSSIA BUYS A RECORD AMOUNT OF GOLD

Over the past three years, the CBR purchased a record amount of gold. As a result, Russia's gold reserves amounted to more than 2,000 tons, which is an equivalent of 17% of global reserves. At the same time, the Bank of Russia reduces investments in the US public debt. The central banks of other countries also started to invest more in gold, with its price sagging in August and rising again recently.

In the third trimester of 2018, the Bank of Russia bought a record 92.2 tons of gold, making it the largest ever quarterly acquisition, the World Gold Council (WGC) reports. According to the WGC analysts, Russia already sold off most of its assets in US Treasury bonds and remains on the track to reduce the Dollar dependency.

Russia started to increase its gold reserve back in 2014, after the introduction of the first US and EU sanctions. By July 2018, the CBR sold off most of its US bonds, reducing their share of public investment to an 11-year minimum. According to the US Treasury, in March Russia held USD 96 billion worth of bonds. By the and of summer there were only USD 14.9 billion left, nearly 12 times less than in 2010. Back then the head of the Central Bank Elvira Nabiullina commented: Moscow takes into account the geopolitical factors in diversifying reserves. As a result, by the ends of April the yield of the 10-year US bonds reached a critical 3%. No such rate as been observed since 2008.

“Americans use the US dollar as a weapon, and Russia is absolutely right in diversifying its FX reserves. Gold is the best liquid alternative should you not want to be held hostage by the dollar,” the financial experts explain Russia's interest in gold. As the sanctions war keeps escalating, the United States threaten to impose an embargo on the purchase of any new issue of the Russian sovereign debt.

The rate of foreign investment in Russia's sovereign debt also declined to 21%, the Finance Ministry acknowledged in October. Other countries also stepped up on gold acquisition, according to the WGC report. Overall, central banks around the globe purchased 148.4 tons of gold over the last three months. This is 22% more than they did over the same period last year (121.8 tons), and a maximum since 2015.

In the third trimester of 2018, the biggest gold-consumer, apart from Russia, was Turkey. Ankara keeps filling its gold reserves, despite the domestic political and economic upheavals. Net gold acquisition by Turkey increased by 18.5 tons over this period, which led to a weakening of the lira by 25%. The official gold reserves in Turkey are now estimated at 258.6 tons.

Apart from Turkey, the WGC report also lists Kazakhstan, which continued to buy gold throughout the third quarter. Net purchase of 13.4 tons over the quarter topped up the country's total reserves to 335.1 tons, the agency said.

Kazakhstan, however, plans to sell some of its ingots to the international clients in order to make its gold more recognizable on the market.

The central banks active on the gold market were also those of India (+13.7 tons) and Poland (+ 13.7 tons). Hungary reported a 10-fold increase in its gold reserves over the past quarter (from 3.1 to 31.5 tons).

At the same time, few are willing to sell gold. Direct sales were virtually inexistent over the third quarter, WGC notes. Among the vendors are the Czech Republic (-0.5 tons) and Germany (-0.2 tons). The latter carries out regular sales as part of its coin minting programme. Notably, Germany and the Czech Republic are the only countries which recorded a significant decrease in gold reserves.