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Russia will stop buying gold through the domestic gold market, the central bank writes in a statement on its website. For future gold purchases, the central bank is awaiting developments in the financial markets. Last year, Russia bought much less gold than in previous years. With this measure, Russia can relieve the pressure on the international gold market. It has not yet been said that the country will stop buying gold completely, because there is nothing in the press release about possible purchases via the international gold market.
The total gold holdings of Russia increased from 9.33 tonnes in February to a total of 2,289.27 tonnes. That gold has at the current Gold price a value of $119 billion representing 21% of the total reserves. This means that Russia has a relatively large amount of gold in its vault, both historically and internationally. The value of the precious metal even surpassed the value of all the central bank's dollar holdings this year.
The central bank of Russia does not cite a reason for halting domestic gold purchases, so we can only speculate on that. According to Dmitry Dolgin, chief economist of ING in Russia, the central bank is sending a signal that traders should sell their gold abroad. In a statement to Bloomberg he says that the global demand for gold is currently very high. An increase in Russian gold exports could alleviate the tightness in the gold market.
Last year Exported Russia already much more gold than in previous years. Almost all of that gold went to the United Kingdom, where a large number of institutional investors, gold banks and Exchange Traded Funds (ETFs) hold their physical gold stocks. Due to a flight to precious metals, many investors have added precious metals to their investment portfolios in the past year. The additional supply of $5.33 billion worth of gold bars from Russia was more than welcome last year.
According to political scientist Sander Boon of Geotrendlines, the Russian central bank's decision to stop buying gold may be a gesture to the rest of the world that it wants to support the gold market. A run on precious metals has caused a shortage in the gold market worldwide, causing delivery times and premiums to increase. "Russia also benefits from a well-functioning global capital market", according to Boon. He sees no indications that Russia will buy gold on the international market from now on in order to drive up the price further. "That would put Russia a stick between the wheels."
Nordea Bank analyst Tatiana Evdokimova told Bloomberg that Russia no longer wants to buy gold now that its total reserves are falling. Due to the unprecedented drop in oil prices and stress in the financial markets T Russia also take advantage of its reserves. In the space of a week, the central bank lost Nearly $30 billion, which is more than 5% of its total reserves. This decline can be attributed partly to support of the rouble and partly to the depreciation of European government bonds. Russia holds about a third of its total reserves in government bonds denominated in euros.
The last time Russia lost so many reserves in a week was during the 2008 financial crisis. Even during the fall in oil prices at the end of 2014, reserves did not decline so quickly. In two weeks, the central bank lost a total of $26 billion. In these crisis periods, Russia did stick to its policy of buying more gold on a monthly basis. The graphs below show the development of Russia's gold reserves and foreign exchange reserves.
Also Read:
Russia has bought a lot of gold in recent years
The gold stock represents 21% of the total reserves
Total reserves Russia since 1999
Russia bought less gold last year
This contribution was made from Geotrendlines
