LAWRIE WILLIAMS: Russia upping gold purchases again

After a few months of seemingly diminishing central bank gold accumulations, Russia added a larger amount to its gold reserves in June than it had in the prior two months thereby perhaps quashing speculation that it may have been intentionally running down its reserve increases.  Thus, for the month of June, the Russian Central Bank reported it added a further 600,000 troy ounces (18.66 tonnes) of gold to its reserves bringing the 6-month total to around 96.5 tonnes which looks like it’s getting back on track to add around another 200 tonnes this year.  It is thus continuing to buy at a faster rate than China’s reported purchases which amounted to around 74 tonnes for the half year, although whether one can believe China’s reported gold reserve addition levels remains subject to debate.

Russia is the world’s fifth largest national holder of gold, as reported to the IMF, and is currently the world’s third largest producer, after China and Australia.  (Its mines produced close to 300 tonnes of gold last year.)  It is rapidly closing the reserve gap on the world’s No. 3 and No. 4 holders – Italy and France – and at the current rate of addition to its holdings could surpass both of these in terms of gold held in official reserves by the middle of next year – if not sooner.

While the Russian central bank remains the biggest accumulator of gold into its reserves as reported to the IMF, there remains a trend for Central Banks in general to increase their reserves with the latest to join the gold reserve building brigade, Poland which, as we reported here a few weeks ago, announced it had added 100 tonnes to its gold reserves in the first half of 2019, almost doubling them to 228.6 tonnes.  This follows on from purchases of around 25.7 tonnes in the second half of 2018. 

According to the World Gold Council (WGC), Central Bank gold demand was up 73% year on year for the first five months of the current year, and the WGC’s recently published 2019 Central Bank Gold Reserves (CBGR) Survey points to continued robust central bank demand for gold in the short and medium term.  In the Survey, 11% of emerging market and developing economy (EMDE) central banks surveyed said they intended to increase their gold reserves over the next 12 months. This is similar to last year’s purchases, when 12% of the world’s 155 EMDE central banks bought gold. This gave rise to 651 tonnes of central bank gold demand, the highest level on record under the current international monetary system. With first half demand running ahead of that in 2018 there is a good chance that 2019 Central Bank accumulations will match, or even exceed, the record 2018 figure.

As another pointer to the improved perception of gold as an asset class, inflows into gold-related Exchange Traded Products (ETPs) are doing extremely well.  In the USA the two largest gold ETFs, GLD and IAU, are both recording big gold inflows, while European ETPs are, according to the WGC, also seeing record inflows with European ETP holdings hitting a new record high in Q1.  With the gold price seeing significant gains over the past couple of months we would anticipate the increased activity in these continuing – they tend to do well in an increasing gold price scenario.

20 Jul 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com