LAWRIE WILLIAMS: Russia adds even more gold to its reserves

Latest figures on its gold reserves from the Russian Central Bank show that the seemingly inexorable rise in the nation’s gold holdings is continuing – at a similar rate to the previous month, but higher than in July. But this latest rise is still at a slower annual rate than in the past three years. This most recent reported increase, for September, is put at 400,000 troy ounces – or 12.44 tonnes – bringing Russia’s reported holding to a total of 2,243 tonnes keeping it in fifth place among reported national holdings, but now less than 200 tonnes behind France – the world’s fourth largest gold holder, and itself only 16 tonnes behind Italy in third place.  At the current rate of gold reserve growth, Russia could well become the world’s No.3 gold holder, as reported to the IMF, after the U.S. and Germany, within the next couple of years.

It seems as if the Russian gold reserve build-up is for a combination of reasons.  First, and perhaps foremost, is the continuing move to reduce its dependence on the U.S. dollar, given the Trump Administration’s apparent propensity to weaponise the dollar in the global power game.  To this end Russia has already reduced the dollar related proportion of its forex reserves to what is seen as the bare minimum, and is actively moving to price its huge oil and gas exports in nondollar related currencies.  It has also been heavily involved in moves, along with China and others, to bypass the dollar-dominated SWIFT (Described by Wikipedia as follows: The Society for Worldwide Interbank Financial Telecommunication, legally S.W.I.F.T. SCRL, which provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.) system under which most global monetary transactions are handled.

The second major reason would appear to be that Russia sees a global financial reset ahead, under which national gold holdings will play an important role.  To this end, the other big national player in building domestic gold reserves is China, which is widely believed to hold substantially more gold than the 1,950 tonnes or so it reports as its domestic holding to the IMF.  China is currently the world’s largest gold producer and Russia No. 3 (close behind Australia in second place) so both nations have the scope for increasing reserves out of domestic production without overtly impacting the global gold market and price.  Indeed Russia probably has the potential to become the world’s largest gold producer within the next decade, given that its annual output is rising, while that of China seems to be diminishing, although Australia also seems to be matching Russia in a race to the top as the world’s largest gold miner.

There is a theory out there that there is a degree of gold price suppression from China in order that the country can continue to build its gold reserves at a perhaps overly-attractive gold price.  The theory continues that once whatever reserve level is reached that is deemed appropriate to China’s long term plans, the price will be let rip.  This could also be true of Russia which should also be able to benefit from building its gold reserves at prices lower than gold fundamentals would seem to justify.  The writer is not a great believer in this theory, although perhaps one shouldn’t write it off entirely as the Chinese do play a long game.  However we are more inclined to believe in gold price control from western central banks, governments and their allies in the banking sector who believe that a rising gold price is, in reality, a condemnation of global government economic policy.  Why should the Chinese suppress the gold price if the West is doing it for them?

Be this all as it may, there is little doubt that any build-up in gold holdings post the 2012-15 gold price crash will have been hugely beneficial in monetary valuation terms so gold reserve building since then by the Russians and Chinese may be seen as a particularly prudent move.  This may well prove to be even more so should the current rising gold price predictions for gold from many analysts and commentators prove to be even half accurate.  We thus suspect that gold accumulations from the two nations will continue in the expectation of continuing precious metals price rises.

20 Oct 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