LAWRIE WILLIAMS: Russian central bank ‘sells’ tiny amount of gold in January - corrected
Latest figures produced by the Bank of Russia suggests the country disposed of 100,000 ounces of gold (3 tonnes) of gold from its foreign reserve (forex) holdings in January. The amount is small relative to the nation’s total holding of 73.8 million ounces (2,295.4 tonnes) – the world’s fifth largest reported gold reserve – that one suspects it was only an accounting adjustment, rather than the suggestion of any change in policy.
Indeed there is speculation that the Russian Central Bank may return to its gold purchasing programme whereby it expanded its gold reserves significantly between 2007 and 2020, before it ceased its gold purchasing programme in April last year. At that time it was considered likely that the reasoning behind the cessation of its gold purchasing activity was in order to persuade the country’s gold miners to sell their production on the global gold market to allay any adverse effects on the country’s balance of payments from the collapse of the oil price. (Oil had previously been the country’s biggest export earner by far.) As the world’s second largest gold producing nation – a position Russia had achieved in 2019 with an annual output estimated at 329.5 tonnes – this change enabled the country to maintain a substantial positive current account in the face of U.S.-led economic sanctions.
Since the decision was taken to cease adding to its gold reserves, the oil price has recovered by around 50% so with both gold and oil sales generating strong revenues Russia could now be recording a very strong balance of payments surplus. With the oil price seemingly continuing its upwards path it has to be a possibility that Russia may start to reinstate its gold purchasing programme, albeit perhaps in a limited manner. Given that the new Biden administration in the U.S. has indicated it will at least continue, and perhaps expand, its economic sanctions targeting Russia, the latter nation looks increasingly likely to even further reduce any reliance on the U.S. dollar. The replacement of any remaining element in its forex reserves with gold could well be a part of its defence mechanism.
While Russia’s annual gold output in 2020 may have slipped a little due to Covid-19 pandemic related restrictions, any fall is likely to be shortlived and the nation has the ambition to become the world’s No. 1 gold producer within the next few years. With China’s annual gold output continuing to slip year on year, this target certainly looks to be achievable. Australia runs Russia very close in terms of annual gold production and may even overtake Russia to regain the No.2 national gold production slot when last year’s figures are analysed. Both countries come well ahead of the U.S. in No.4 spot with annual gold production of around 200 tonnes