LAWRIE WILLIAMS: Russia stands pat on gold reserves.
The Bank of Russia, that nation’s central bank, always seems to be on schedule in announcing changes, or otherwise, in its foreign exchange holdings, of which gold holds an important position. On the 20th of each month, unless that date falls on a weekend or holiday, it publishes its forex update. Gold followers will no doubt be well aware that the Russian central bank was mostly the world’s biggest central bank purchaser of gold up until April last year when it ceased all gold purchases in favour of persuading its gold miners to sell their output directly on the global gold market – a position it was happy to announce in advance.
Russia is probably the world’s third largest gold producer, running extremely close to Australia in second place, but with an announced intent to raise output sufficiently to overtake China – currently the world No.1. At current likely rates of increase, coupled with a possible decline in Chinese output, mostly on environmental grounds, it would yet take several years for Russia to achieve that particular goal.
Yesterday the bank announced yet another month of zero gold purchases or sales with its holdings remaining at 73.8 million troy ounces (2,295.4 tonnes). The policy of forcing its gold miners to sell their output on the open market, rather than to the state, has given a huge boost to the country’s balance of payments account which had been decimated by the collapse in price of the country’s principal export – oil and gas. However the recovery in the oil price in particular has prompted us to speculate that the central bank might return to making gold purchases in its continuing efforts to reduce dependence on dollar-related assets in its reserves. However if it is to do so it would probably announce such a policy change in advance, and there’s no inkling of that yet.
With its sanctions policy and its vehement opposition to the NordStream 2 gas pipeline across the Baltic to Germany, the U.S. seems to be continuing to conduct economic warfare against the Russian economy. So far this seems to have had little serious effect with Russian trade increasing with ‘friendly’ nations to counteract sanctions on trade with U.S. allies, and gold replacing oil as the major export earner. Russia remains worried about being cut off from the Western-controlled SWIFT, The Society for Worldwide Interbank Financial Telecommunication, which, according to Wikipedia, provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardised and reliable environment. SWIFT is thus a key element in world trade. The system is effectively controlled by the U.S. which has thus prompted those countries which might feel vulnerable to being cut off from it – notably Russia and China – to try and build an alternative system – a work still in progress.