LAWRIE WILLIAMS: Russian gold policy paying off
Readers will recall that the Russian central bank announced that it would cease adding to its gold reserves, perhaps temporarily, as from April this year. Previously Russia had been by far the biggest buyer of gold for its reserves with a policy which had taken them to a fraction under 2,300 tonnes – the world’s fifth largest gold reserve as reported to the IMF. That left it close behind Italy and France, the third and fourth largest holders, both of which report holding between 2,400 and 2,500 tonnes, but well short of Germany which has reported gold reserves of 3,367.9 tonnes and the U.S. with 8,133.5 tonnes, all as tabulated by the IMF. China is in sixth place with reported holdings of .2,141 tonnes, but the nation has not been fully transparent over its gold holdings in the past and many believe them to be far higher.
Russia reportedly has held off buying gold for its official reserves in favour of allowing its gold production (Russia is believed to be the world’s second largest gold producer – after China) to be sold on international markets, and this seems to be paying off hugely in terms of export earnings. Gold is now reported to be the nation’s largest export earner, ahead of natural gas which used to be the country’s No.1, helping give the country a positive balance of payments despite U.S. generated economic sanctions which, in theory should have adversely affected Russia’s international trade figures. Indeed the Russian central bank has just reported a record level of foreign exchange reserves, now totalling US$ 594.422 billion at the end of August, of which its gold holdings are worth a new record of US$144.588 billion due to the rise in the price of gold on international markets.
Thus Russia, which has also been badly hit by the global COVID-19 coronavirus outbreak (it currently lies in fourth place for total numbers of confirmed virus cases after the U.S., India and Brazil at well over 1 million), looks to be in a far better place than most other virus-affected countries which have run up enormous debts to counter the virus’s economic impact. In this respect Russia seems to be coming out of the virus situation in a stronger economic position than most Western nations, and its gold policy has to be seen as one of the principal reasons behind this performance.
According to the analysts at Metals Focus on behalf of the World Gold Council, Russia produced 329.5 tonnes of gold in 2019 as compared with China’s 383.2 tonnes in first place, and Australia’s 325.1 tonnes in third. Russia seems to be closing the gap on China, where production has been falling due primarily to stricter environmental controls on its gold mining operations. Should this pattern continue – and reports suggest that Russian gold production is rising further this year - it may not be long before Russia usurps China’s first place position at the head of the global gold production table. Australian production also seems to be rising and with gold output growing at these two major gold mining nations this is, at least in part, serving to counterbalance falls elsewhere in the world.
Both Russia and China seem to feel that gold will be of increasing importance in defining any new global financial order which may arise over the next few years and their respective places as the top two gold producing nations should stand them in good stead in this respect. The likely future fallout from the coronavirus pandemic, which has caused most Western nations to run up huge debts, may well lead to a global financial reset sooner rather than later which should leave Russia and China particularly well-placed.