LAWRIE WILLIAMS: Russia replaces reserve gold utilised?
So far this year Russia has reported two 3.1 tonne disposals from its accumulated gold reserves. At the time we put these figures down to accounting anomalies. Now, for July, the Russian Central Bank has reported the addition of a similar figure of 3.1 tonnes of gold back into its reserve total. This suggests the earlier withdrawals to have been a temporary measure to meet some specific necessity and perhaps we should also anticipate the other 3.1 tonne withdrawal being replaced within the next month or two so that Russian gold reserves are returned to their prior level of 2,299 tonnes, the volume at which they were recorded back in 2020 after it had announced it would temporarily cease to add to its monthly gold reserve figure as from the beginning of May that year.
At the time, it looked as if the new non-gold-purchasing decision was based on necessity. The principal Russian export commodity had been oil and natural gas from its huge reserves, with this going mostly to Europe and China. However the prices of these key fossil fuels had fallen drastically by then – perhaps so manipulated by the U.S. in an attempt to partially destabilise the Russian economy.
Russia’s answer was to cease buying gold for its reserves, virtually all of which had been coming from the nation’s own gold miners (Russia is, according to the analysts at Metals Focus, the world’s second largest producer of the yellow metal) at over300 tonnes a year. It thus effectively forced its gold miners to sell all their product on the international market, which provided a huge boost to the nation’s international payments balance and thus helped secure the Russian economy and the ruble.
Since that policy was introduced oil and gas prices have made a substantial recovery thus adding further to the Russian current account which is running at a healthy level. In comparison the U.S. currently reports a massive balance of payments shortfall although this seems to have had little, or no, impact on the parity of the dollar against the ruble.
The recovery in oil and gas prices, taken together with the coming on stream of the controversial Nordstream 2 gas pipeline into Germany, should further enhance the Russian payments balance assuming the country maintains its gas pipeline flows via the existing pipeline through Ukraine, as it has promised. This has led us to speculate that the Russian Central Bank may resume gold purchases by the end of the current year by when the first branch of the Nordstream 2 pipeline may be online.
The U.S. has been strongly opposed to Nordstream 2. Its political response has thus included the imposition of limited sanctions on some of the companies involved in Nordstream 2’s construction. The U.S. has gone on record as saying that the new pipeline, in addition to existing routes brining Russian natural gas into Europe, will give Russia too much leverage over Europe through the latter’s extreme dependence on Russian gas imports. One can’t help feeling that this is very much a political position with the U.S. using every means possible to try and reduce Russian progress in its economic ties to an area which is otherwise seen to be in the U.S. area of influence.
Meanwhile, Russia has also changed any restrictions on gold purchases by its Sovereign Wealth Fund, which is controlled by the Central Bank. This allows the Fund to purchase gold in its own right, which it was previously prevented from doing. This could provide another back door for the accumulation of gold by the Russian state, and whether it would feel the necessity to report any gold so purchased to the IMF remains uncertain. It could well follow the Chinese route of holding some of its gold reserves in accounts that it deems to be outside of necessity for reporting monthly to the IMF.
One should thus probably keep a wary eye on Nordstream 2 progress, oil and gas prices and on Russian reserve and Sovereign Wealth Fund gold accumulations. The reserve figures in particular could have an important effect on global gold supply/demand fundamentals.