LAWRIE WILLIAMS: Russia continues gold purchases but volume down yoy
The Russian central bank has announced the purchase of another 400,000 ounces (12.44 tonnes) of gold in August for its gold reserves. This brings its total holding to around 2,230 tonnes keeping it in fifth place among national holders of gold, and closing in on France and Italy – currently in 4th and 3rd places in terms of reserves as reported to the IMF, with respective holdings of around 2,436 and 2,452 tonnes. Of course many believe that China is actually higher than all these in terms of gold held as against the 1,936.5 tonnes it reports to the IMF as it has a track record of holding additional gold in accounts it claims are not reportable to the IMF. Be that as it may, if Russia keeps up gold purchases at the current rate it could surpass the French and Italian holdings within the next 18 months.
However there is some evidence that Russia may be cutting back its annual rate of gold purchasing, although it remains in first place in terms of annual central bank gold reserve increases. For the past three years it has accumulated 200 tonnes of gold each year, or more, but this year seems to be heading for purchases of perhaps 180 tonnes or less. So far this year Russia has added around 118 tonnes of gold to its reserves and, at the current rate, it looks like it may add a further 50 tonnes by the year end bringing this year’s total to perhaps 170 tonnes. Last year the nation added some 275 tonnes to its gold reserves, so this year’s likely accumulations represent a big cut. Although it should be noted that last year’s gold accumulation coincided with a particularly big drop in U.S. dollar related securities.
Russia has been running down its holdings of U.S. dollar-related Treasuries as a protection against a possible U.S.-instigated asset freeze as part of the latter’s ongoing and escalating, sanctions programme. The build-up in gold reserves is presumably an integral part of this process. In terms of gross value the Russian gold accumulations also look to have been a smart value move given the advance in the gold price so far this year to in excess of $1,500 an ounce, around a 25% increase over the past 12 months.
Russia also seems to be increasing its annual gold output as the world’s third largest producer of the yellow metal with an annual ouput estimated at 300 tonnes or more. It may even have aims of surpassing both the world’s No.1 (China) and No.2 (Australia) in terms of annual gold output over the next few years, given China’s gold production appears to be in a downwards phase largely due to stricter environmental controls being applied to the country’s mining operations. However, Australia’s gold output, although only a few tonnes in excess of Russian production, is also rising – it has also recently recorded a new record annual figure (see: Australian gold output hits new record) so there is something of a race to the top in progress, while China may not give up its No.1 producer crown without a fight. All three nations are likely to end up with 2019 annual gold production figures of between 300 and 400 tonnes, but retain their respective producer positions for the current year at least.