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LAWRIE WILLIAMS: Russia adds another 15.6 tonnes to gold reserves in April

The Russian central bank has announced that it added a further 500,000 ounces (!5.6 tonnes) to its gold reserves in April, keeping it ahead of China in its announced monthly gold accumulations, but a little below its March figure of 600,000 ounces.  Even so, it is comfortably on track after four months of the year have passed to again accumulate over 200 tonnes of gold in the full year.

It will not have gone without notice that the Bank of Russia almost always announces its gold reserve increases in round numbers – usually to the nearest 100,000 ounces – but the likelihood is perhaps that this is just an announced figure and the true accumulation which, in due course will be passed on to the IMF for its world gold reserve statistics, will be marginally higher or lower.  Overall, if we incorporate the latest increase as announced into the IMF figure for Russian central bank gold holdings we come up with a figure of around 2,184 tonnes of gold as the world’s fifth largest national holder of gold, which puts it within spitting distance of the World’s No.s 3 and 4, Italy and France which respectively report their gold holdings at 2,451.8 tonnes and 2,436,0 tonnes.  At its current gold accumulation rate, Russia could move ahead of both of these by early next year.

Russia has been the largest annual accumulator of gold for some years now, at least as far as figures reported to the IMF go.  (We have always held the opinion that China has been increasing its gold reserves at a faster pace than it has been reporting to the IMF, but hiding this excess gold in accounts it says does not meet the criteria for reporting as part of its official forex reserves),

Russia, however, seems to have been following a conscious policy of replacing most of its U.S. dollar-related holdings in its forex mix given the imposition of mostly Crimea-related U.S. economic sanctions.  With U.S. under the Trump Administration seeming increasingly willing to impose economic weapons against countries which it deems to be unfriendly, it would not be too surprising if some other countries were to follow the Russian lead.

Notably among these is China, but arguably its holdings of U.S. treasuries are too enormous (probably in excess of, or around, $US3 billion) for it to dump any significant proportion of them without some kind of U.S. economic retaliation.  One suspects though that China might run these down very slowly, so as not to raise U.S. ire, and also refrain from new U.S Treasuries purchases until, at least, the U.S.-imposed trade war is brought to a satisfactory mutual conclusion.

Meanwhile the U.S. ‘Powers That Be’ seem to be doing their best to prevent those that have been building their gold reserves at the expense of the U.S. dollar to be seen to be making any substantial paper gains by keeping the gold price down.  This is despite what appear to be positive fundamentals for the yellow metal.  The vast amount of paper gold which is traded on the futures exchanges provides a convenient route to so doing.  But it appears that institutional interest in gold as an asset class capable of making gains may be returning which may suggest the big money is anticipating a decent gold price rise in the near future.  If so, those nations which have been replacing U.S. dollars with gold in their forex reserves will feel well justified in so doing’.

According to the World Gold Council, last year central banks added the most gold to their reserve totals since President Nixon cut the U.S. dollar’s ties to gold in 1971.  So far this year central bank gold acquisitions still remain elevated, with Russia continuing to lead the pack, although at perhaps a slightly lower rate than last year.  Gold thus still retains a prominent role in global finance with few central banks, apart perhaps for Venezuela’s. Being seen to divest any of their holdings to meet short term needs.  In Venezuela’s case this probably has little significance in the global gold supply/demand picture as the country is a significant gold producer and we assume central bank sales may just be replacing direct sales from the state-controlled mining companies.. 

The apparent acceptance of the yellow metal’s global economic role should stand it in good stead in the months and years to come, particularly since global new mined supply is at the very least plateauing.  Many expect new mined supply to start turning down in the near future (peak gold) given the dearth of major new discoveries and continuing consolidations among the gold majors with older mines approaching the ends of their lives not able to be replaced by new projects already in the pipeline.  Higher gold prices, if they come about, can also, counter-intuitively, lead to reduced output with miners able to mine lower grade section in order to prolong mine life.

21 May 2019 | Categories: Gold, Russia

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