LAWRIE WILLIAMS: Is Russian Central Bank reducing its gold purchases?

Despite U.S. imposed trade sanctions on Russia, largely followed somewhat reluctantly by the U.S.’s European Union allies, the Russian economy, in terms of growth in Foreign Exchange reserves, is growing – even as the Putin-controlled megapower seems to be reducing its dollar-related assets to the bare minimum.  Latest reports suggest that Russia is moving into having the world’s fourth largest forex reserves by overtaking Saudi Arabia which had previously been holding that position.  The top three are China, Japan and Switzerland.  While Russia is currently in fifth place with forex reserves of around $520 billion, Saudi Arabia is only slightly ahead and will likely be surpassed this year, according to analysis by Fitch ratings.  Russian forex reserves are seen as rising to over $600 billion by 2021 as it builds them up in response to the possible imposition of additional sanctions by the Trump-led Administration in the U.S.

One of the keys to Russian forex growth has been its programme of gold purchases over the past few years.  Russia has been seen as the world’s largest accumulator of gold reserves over the past several years adding 200 tonnes of gold or more to its reserves annually for the past several years.  Its Central Bank has just announced the addition of a further 300,000 ounces (9.33 tonnes)  in July bringing its total to 2,218 tonnes – the world’s fifth largest national gold holding – only marginally behind those of the current third and fourth largest holders, Italy and France, which respectively hold 2,451.8 and 2,436.1 tonnes according to official figures reported to the IMF.  At the most recent accumulation rate Russian holdings could surpass both of these in the next year or two.

However there are indications that the Russian gold purchase levels could be slowing down.  In the first seven months of the current year, Russia has only added 105.8 tonnes – still within reach of another 200 tonne year, but slipping back slightly.  Extrapolating over the full year that suggests a total of around 180 tonnes this year – a little lower than that of the annual totals for the past three years.  Even so, with the recent gold price rise, the value accumulation in the reserves is on the increase.

There is little doubt that the Russian gold accumulations have provided an important element in the boosting of its forex reserves and the huge reduction in the country’s dollar related assets.  Russia is the world’s second largest oil producer and, provided oil prices remain at or near current levels the country’s economy will likely continue to grow regardless of any U.S. imposed sanctions.  Tensions in the Persian Gulf and with the Iran stand-off will likely keep oil prices reasonably elevated and Russia’s ever improving economic links with China will keep its payments balance positive.  Thus U.S. imposed sanctions seem to be having little effect on Russia’s domestic economy.  Sanctions will undoubtedly remain in place as Russia is hugely unlikely to comply with U.S. demands that it hands the predominantly ethnic Russian populated Crimea back to Ukraine.

Russia Is also the world’s third largest gold producer (after China and Australia) and has designs on becoming the World’s No.1 as Chinese production continues to slip and the gap with Australia is exceedingly small.  Thus reserves can continue to be built from domestic production alone, although moves appear to be afoot for Russian gold miners to boost exports too.  The rate of accumulation by the bank of Russia may be diminishing, but only at the margin, as the nation continues to see gold as a key element in maintaining its strong global economic position.

21 Aug 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com