LAWRIE WILLIAMS: Russian Central Bank stands pat on gold reserves.
Up until April 2020, the Russian Central Bank had been the largest persistent annual purchaser of gold for addition into its forex gold reserves for some years. As the world’s second or third largest gold producer (it has been vying with Australia for this position) it had been able to do this by buying in domestically mined gold at a rate of around 200 tonnes a year, but last year it changed tack and has effectively kept its gold reserve position static since then, with only very minor adjustments in the monthly figures.
The apparent reasoning behind the policy change had been the sharp fall in global prices for oil and gas, which had been the nation’s principal export earners. Gold prices had been rising and the government and Central Bank, saw an opportunity for making up a potential balance of payments shortfall, thereby stabilising the economy, by persuading the nation’s gold miners to sell their output on the world market, rather than have the Central Bank buying it in.
This policy has been hugely successful, with sales of gold overtaking oil and gas export earnings in value, despite some big increases in price for the latter in recent months. Indeed Russian forex reserves as calculated on September 1st had already reached new record levels with the combination of the oil and gas price recovery plus massive earnings from gold sales leading to an August forex reserve increase of $18 billion bringing Russia’s total forex reserves to $618.1 billion at the beginning of September. With the controversial NordStream 2 natural gas pipeline capable of coming on stream by the end of the year the Russian balance of payments surplus will probably advance further assuming sales are not blocked (the U.S. and some others are vigorously opposed) and gold, oil and gas prices stay at current levels. The U.S. by contrast is currently running a huge balance of payments deficit.
As reported to the IMF, Russia is the world’s fifth largest national holder of gold with a total of 2,295 tonnes after the U.S.. Germany. Italy and France, It reportedly holds more gold than China, in 6th place although there are ever-continuing doubts on the true level of Chinese reserves with strong suspicions that China holds additional gold in separate accounts which it feels no need to report to the IMF.
When Russia announced that it would be freezing its gold reserves after several year of adding to them annually, there was the impression that the measure would be temporary and that Central Bank purchases would resume at a later date. The recovery in oil and gas prices seems to have raised the possibility that Russia might not feel the necessity to continue with the current level of gold exports and might resume purchases on its own account, but perhaps at a reduced level. However, so far there has been no indication that such a policy change might be imminent.