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LAWRIE WILLIAMS: Russia still quiet on gold reserve increases – if any.

The time of the month when Russia traditionally updates the world on any increases, or declines, in its official gold reserves has been and gone and, as announced a couple of months ago by the central bank: "International reserves as of February 18, 2022 accounted for $643.2 billion. These data will be used in all publications in the next three months from February 18, 2022."  This is despite the prior announcement that the nation’s central bank would resume its gold-buying programme from April.  No doubt the necessity of financing the ‘war’ on Ukraine, for which some of Russia’s built-up gold reserves – officially the fifth largest national reserve holding as reported to the IMF (China is sixth but there is considerable speculation that the latter country may actually hold far more gold in government accounts than it admits) has perhaps led to a need for secrecy in its gold dealings.

Russia is either the world’s second or third largest gold producer (vying with Australia for this position depending on whose figures are most accurate), so does have access to sufficient domestically-mined gold to keep its reserves topped up.  This is even if wartime demands are at a high level, but the state of its actual reserve position could be an indicator of how it is handling the wartime demand on its economy.  This would be particularly so in the face of economic sanctions which will have cut it off from much of its access to dollar-based supply sources and its gold miners from some key spares and consumables.

If Russia keeps its word we will have an update on its gold reserve position on June  20th but don’t bank on it.  Wartime necessities may see such strategic information only released on a need-to-know basis and the global public probably does not fall into this category.  We may get an indication from some of the mining companies as they report their results, but these will only indicate prices paid for their output, and its volume - not for its utilisation.

There has also been speculation that Russia and China between them are planning to come up with a gold and commodity-backed currency to challenge dollar hegemony as the world’s principal reserve currency.  The U.S. dollar has been in perennial value decline while the idea of the challenging alternative is that it would be a currency with a much more stable base which would therefore better meet the needs of those holding it as a reserve asset.  The timing of the possible introduction of such a reserve currency is somewhat less certain, but it could even be imminent.

At present the U.S. Federal Reserve is desperately trying to bring U.S, prices down by reducing price inflation by raising interest rates and through Quantitative Tightening, but it looks to be fighting a losing battle and sharply falling equity prices and recession looks to be looming.  A U.S. recession could also adversely affect the U.S. Dollar Index, which might hasten the appeal of the implementation of an alternative global reserve currency, assuming one is planned, Interesting times for the global economy!

22 May 2022 | Categories: Gold, China, Dollar, Russia, US, FOMC, Mining

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