LAWRIE WILLIAMS: Russian gold reserves stand pat
Despite our belief that Russia may reinstate gold purchases into its central bank holdings, we also suspect that, as it did ahead of when it ceased buying, it will announce any change in its gold accumulation policy plans well in advance of restarting gold purchases – if indeed it does do so. In its latest announcement on its forex gold reserves, the gold element remained unchanged even after the gold reserve size had been reduced by just over 3 tonnes in January.
We felt at the time that this may have been just an account adjustment and did not signify any change in policy which now seems to have been confirmed by the latest zero change figure. Russia’s gold reserves remain still the world’s 5th largest national holding as reported to the IMF, but it looks as though our prediction that as the country’s balance of payments has improved, due to rising oil and gas prices, that the country might start resuming gold purchases, may have been somewhat premature. Russia’s reported gold reserves thus remain at a fraction over 2,295 tonnes.
At the time Russia suspended its gold purchasing programme back in April 2020, the country’s central bank said this would be kept under review dependent on the situation in the financial markets.
We had thus been of the opinion that the principal reason that Russia ceased adding to its gold reserves from April 2020 had been a tactic to divert gold sales to the export markets. According to precious metals consultancy, Metals Focus, Russia’s gold production had risen to become the world’s second highest, after China and overtook Australia last year, although it may well have fallen back to third place again in2020 in part due to Covid pandemic interruptions at some operations. The export of gold by the country’s major producers would thereby make up for the fall in the value of the country’s principal export income from the sale of oil and gas – primarily to Europe and China – due to the sharp fall in prices on global markets. More recently oil has clawed back a good proportion of its price fall, thus keeping Russia in a relatively strong current account position – certainly in relation to the U.S. which continues to run a massive balance of payments deficit.
We feel that Russia may resume gold purchases in part to further reduce the position of the U.S. dollar in its foreign exchange holdings. Russia suspects that it may be open to potential blockage of its dollar accounts by a hostile U.S. government which seems to have little compunction in using the dollar’s position as the world’s principal reserve currency as an economic weapon to try and impose its views on the domestic and foreign policies of other nations. This view will not have been helped by a U.S. threat to impose economic sanctions on Germany should the latter go ahead with the import of Russian gas via the controversial NordStream 2 gas pipeline to which the U.S. has always been vehemently opposed.
Russia’s position is likely to be echoed by China which is also uncomfortable with the prospective weaponisation of the U.S. dollar given its global financial dominance. However China’s economy continues to revive, and indeed grow, as that of the U.S. appears to be shrinking under the impact of Covid-19. Both Russia and China almost certainly see some kind of global financial reset taking place in the relatively near future and see gold possibly playing a part in any adjustment to what is considered to be the world reserve currency. They see the dollar being replaced in this role perhaps by a basket of currencies on the lines of the SDR, but including gold in its make-up. So, if anything they may well make moves to further boost their gold reserves in the future, which is one of the many positives in gold’s likely future performance.