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LAWRIE WILLIAMS: : Russia keeps up the gold buying pace

Russia keeps up the gold buying pace

The Russian central bank has announced that it added another 600,000 ounces of gold (18.7 tonnes) to its reserves making a total of over 55 tonnes already so far this year.  This puts it on target for another year of plus 200 tonne gold additions to reserves for the fifth year in a row.  For all of 2018 the Russian central bank accumulated an additional 274 tonnes of gold making it comfortably the world’s fifth largest gold holder as reported to the IMF.  If it carries on increasing its gold reserves at, or around, its current rate it is closing the gap fast on the world’s third and fourth largest reported holders of gold – Italy and France – and could surpass them both within the next twelve months.

China too is continuing to build its gold reserves, but reportedly at a slower rate than Russia, although one seems to be less able to rely on the veracity of China’s figures.  As reported to the IMF, China is the world’s sixth largest official gold holder at around 1,873 tonnes as compared with Russia’s 2,163 tonnes if one includes the latest figures for March accumulations for both nations. However it is widely believed that China in reality has much larger gold holdings through holding substantial amounts of gold which it hold in accounts which it does not total with its other forex holdings, thus providing it with an excuse for not reporting these to the IMF.

Regardless, Russia and China are both building their gold reserves, seen as a counter to U.S. dollar dominance in world trade.  Russia has already been the subject of U.S.-imposed economic sanctions and has, as a counter-measure, already disposed of almost all its holdings of U.S. treasuries in its forex reserves and it looks like China may be on the same path,  although has almost infinitely larger U.S. dollar-related holdings to liquidate, if indeed it should wish to do so.  Iran, which the U.S. has already cut out of dollar access, is China’s largest oil supplier, closely followed by Russia, and removing transactions between these nations from petrodollar reliance will allow transactions between them with a gold backed yuan and/or ruble,  Bring other nations which have issues with the dollar into the mix and you have the initial stages of moves under way to remove ultimately the dollar from its current dominant position in global trade transactions.  There are even indications that European nations are unhappy with U.S. sanctions impositions on third party states and could also be moving towards diminishing their reliance on the dollar in their reserve structures and global trading.

Last year, according to the World Gold Council, 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 the levels of central bank gold acquisitions have perhaps fallen back a little, but still remain elevated, with Russia continuing to lead the pack.  These acquisitions, coupled with the reluctance of the world’s major gold holders to dispose of any of their gold reserves, suggest that gold still has a prominent role in global finance.  This apparent acceptance of the yellow metal’s 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 and many expect it to start turning down in the near future given the dearth of major new discoveries and continuing consolidations among the gold majors with older mines approaching the ends of their lives not really being replaced. 

We have never been among those predicting a massive sudden rise in the gold price, but still look to steady progress in the years ahead – perhaps to say $1,550 by the end of the decade.  It may thus do little more than protect against currency erosion, but that has to be seen as a major positive when other asset classes are looking vulnerable.

22 Apr 2019 | Categories: Gold, China, Dollar, Russia

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