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LAWRIE WILLIAMS: Russia adds another 3 tonnes of gold to its reserves

It is so far difficult to tell if Russia is again starting to build up its gold reserves, but in relatively tiny amounts, or if its latest 3.1 tonne gold reserve increase in October is just an accounting adjustment.  However, it appears that October was the third month out of the past four that a similar amount of gold has been added to the nation’s reserve total.  According to the Russian central bank’s own figures, the nation’s gold reserve now stands at 2,302 tonnes – a few tonnes higher than the 2,295.4 tonnes it has been reporting to the IMF, but not a sufficiently large increase so as to move it up from fifth place among national holders of gold, and too little to yet suggest any overall definitive change in policy.

Readers will recall that the Russian central bank announced a year and a half ago that it would cease adding to its gold reserves after April 2020, and by and large it has been sticking to this up until the small 3.1 tonne increases recorded in the months of July, September and October.  These have followed on from similarly sized reductions in two early months in the year.

As we reported a month ago, the rationale behind Russia ceasing to add to its gold reserves had been taken, apparently, to alleviate the financial impact of the big drop in oil and gas prices – previously by far Russia’s largest export earner – and thus on the country’s foreign trade balance.  Russia was therefore able to replace the falling oil and gas export income by persuading its gold miners to sell their product on the international market instead of to local banks.  From these the domestically-mined gold had mostly found its way to the central bank via the commercial banks.  That had led to a number of months in which gold had become the country’s largest export earner replacing oil and gas as such. 

Over the past few months, though, oil and gas prices have made an enormous price recovery to about double the level (oil) and multiples of prior levels (gas) of early 2020.  There has thus been speculation that the central bank could now be in a position to resume its gold purchases which at one time had been running at around 200 tonnes a year.  The recent small reserve increases have so far been too low to confirm any official trend reversal. 

Russia, under the pragmatic guidance of Vladimir Putin, has been conducting one of the most effective international economic policies of any major nation, perhaps unhindered by Western capitalist system political constraints.  It thus probably finds itself in one of the strongest economic positions of any nation with its current stranglehold on natural gas supplies to Europe.  It probably has the world’s biggest natural resource base, and has played to its economic strengths in a way that seems to have completely seen off any adverse effects of U.S.-imposed sanctions which seem to have totally failed to bring it to its economic knees.

Russia is either the world’s second or third largest gold producer, after China, depending on whose data is the most accurate, with annual output estimated at around 330 tonnes.  This gives it ample scope to build its gold reserves from domestic sources alone if it should wish to do so.  It has used gold and other major currencies like the euro and the yuan as a means of totally reducing any reliance it may have had on U.S. dollar-related securities, which it has relegated to only a tiny part of its total forex holdings, in order to allay any vulnerability to possible adverse U.S. economic action.

Russia, and reportedly China, had – until they both ceased officially adding to their gold reserves in 2020 and 2019 respectively – been the two largest consistent central bank accumulators of gold for their reserve holdings.  Without their additions, therefore, overall central bank gold buying  had dipped.  Ongoing regular purchases from India, Kazakhstan and Turkey, plus occasional big one-off accumulations from countries like Poland, Thailand, Brazil and Hungary, though, have kept central bank gold reserve increases well into positive territory, although still reportedly below the levels of some prior years. 

Should Russia be on the way to resuming its 200 tonne a year gold reserve increases, this would likely give a strong boost to the gold price path.  As pointed out above, it is still too early to tell if this is in consideration.  Keep an eye on this space for the most up-to-date information on this potentially key element in gold supply/demand fundamentals!

23 Nov 2021 | Categories: Gold, Dollar, Russia, US

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