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LAWRIE WILLIAMS: Russian gold reserves ups and downs

We had speculated a month ago that the small increase in Russian gold reseves in October might be the forerunner of a return to regular gold buying activity by the nation’s central bank  Readers with only relatively short memories will recall that Russia had been the largest regular buyer of gold for its reserves until this came to an abrupt halt, as forewarned by the bank, in April last year.

However the October 100,000 ounce (3.1 tonne) reserve increase has now been followed in November by a similarly sized gold disposal thus leaving Russia’s gold reserves effectively unchanged over the year – at least in volume.  The actual value will have been fluctuating with the gold price.

The assumed reasoning behind the freeze on gold purchases was to mitigate potential foreign exchange losses in the nation’s current account caused by the dramatic drops in global oil and natural gas prices. These had been, until then, by far the largest contributors to Russia’s export income keeping it having a more than welcome balance of payments surplus.  The falling oil and gas prices had put this position at risk, but if the nation exported most of its gold (it is the world’s second largest gold producer by some estimates) rather than absorbing it into its forex reserves as it had been doing, it could reverse its potential balance of payments deficit and push it into a comfortable surplus again.

The above has indeed come to pass. However, the recent recovery in the oil price, and the huge advance in natural gas prices, would seem to have meant that the country might be in a position to return to its central bank gold buying programme, without threatening its current account surplus position.  On the face of things this has not happened – at least not yet.  However changes in the make-up of Russia’s $180 billion plus National Wealth Fund, which is also administered by the central bank could mean the country is again building its gold reserves into an account deemed not reportable to the IMF, yet still strengthens its global economic positioning.

Back at the mid-year, Russia announced, at the St. Petersburg International Economic Forum, that it had made the decision to excise U.S. dollar assets from its National Wealth Fund and would replace the then existing dollar assets primarily with euro, yuan and gold assets instead.  This was seen as a warning to the U.S. that any forthcoming increase in U.S. economic sanctions – imposed nominally as a result of the Russian annexation of the Crimea – would have little to no effect on the Russian domestic economy.  There was the suggestion at the time that the share of euro assets in the fund was expected to be around 40%, yuan 30% and gold 20% with the balance in Japanese yen and the UK pound sterling. 

The changes were expected to take place with immediate effect and could represent a stealth means of building the nation’s gold reserves.  The moves to accomplish this could even be responsible for some of the small in and out gold movements reported in the Russian central bank’s ongoing foreign exchange reserve data this year.

As we noted a month ago, Russia, under the pragmatic guidance of Vladimir Putin, has been conducting one of the most effective international economic policies of any major nation, unhindered by Western capitalist system political constraints.  It is thus possibly in one of the strongest economic positions of any nation globally. 

Russia currently appears to have a stranglehold on natural gas supplies to Europe and, with its huge geographical size probably has the world’s biggest natural resource base.  It has played to its economic strengths in a way that seems to have completely countered any adverse effects of U.S.-imposed sanctions which seem to have totally failed to bring it to its economic knees. This has certainly meant that several European nations, many of which have themselves been adversely affected by the U.S.-imposed economic strictures on Russia, have questioned the efficacy of imposing any further sanctions on the world’s third superpower.

21 Dec 2021 | Categories: Gold, Dollar, Russia, US, Euro

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