LAWRIE WILLIAMS: Russia’s gold reserve ups and downs. What is the ulterior motive?
It is somewhat difficult to tell what movements of gold in and out of the Russian central bank’s forex reserves actually represent. In December, Russia added 100.000 ounces (3.1 tonnes) to its gold reserves, but this only served to compensate for a similarly-sized withdrawal from its reserve the previous month and brings the nation’s gold reserves back to 2,301 tonnes – the world’s 5th largest national official holding, assuming one believes the official Chinese total of 1, 948 tonnes. We are not alone, though, in suggesting China’s real gold holdings may be far higher, perhaps by thousands of tonnes and perhaps Russia too is hiding big gold reserve increases..
A recent podcast interview with Simon Hunt of Simon Hunt Strategic Services by Grant Williams exposed a view that China’s true gold reserve level is many thousands of tonnes higher than the officially stated figure. Hunt has a strong credibility in the financial sector. He was one of the original founders of the highy respected Brook Hunt consultancy, which still carries his name, although he is no longer involved. In particular his expertise and knowledge of China’s role in international markets is perhaps unparalleled given he spends three to four months a year in that country in discussions with many Chinese officials and business leaders.
Hunt not only casts doubt on the official Chinese gold reserve figures, but also on Russia’s reported figures. China and Russia are assessed to be the world’s two biggest gold producers by leading precious metals consultancy, Metals Focus, (although Australia might dispute Russia’s categorisation as the world No.2), so Hunt reckons there has been plenty of opportunity for both nations to build gold reserves surreptitiously from domestic sources and to hold this gold in unreported accounts separate from their officially reported foreign exchange holdings. Indeed China has an officially admitted track record of so doing, while Russia has somewhat muddied the transparency waters by allowing its National Wealth Fund to hold gold, without actually publishing details of the Fund’s holdings.
But back to Russia’s recent announcement that it has added 3.1 tonnes to its gold reserves. This is just one of several similar sized transactions in and out of its Forex reserves over the past year, all together amounting to a zero balance change in total. In this respect it is difficult to assess any reasoning behind the balance changes given that they seem to be pretty much irrelevant to the country’s overall position in the official global gold holding hierarchy. Its reserves, at least as officially stated, remain smaller than those of the U.S., Germany, Italy and France.
If, as Simon Hunt suggests, Russia and China both hold, or have access to, far more gold than the official reserve level suggests, then this could stand them in good stead, given the acceptance of gold as a key asset by the world’s financial elite should there be a reset of the global financial pecking order. Currently the U.S. is the dominant entity in this respect with the U.S. dollar remaining as the world’s principal reserve currency with perceived financial advantages in global trade as a result. China, in particular, and Russia, both seem keen to negate this ‘advantage’ and may be making their respective plays via gold holdings accordingly.
Meanwhile Russia’s small rises and falls in its announced official gold reserve position remain uncertain in their relevance, although there could be a hidden agenda in the country’s National Wealth Fund accumulations. Officially suggested policy is that this will be used to further reduce the U.S. dollar element in Russia’s forex reserves, with the share of euro assets in the fund expected to be around 40%, yuan 30% and gold 20% with the balance in Japanese yen and the UK pound sterling. Indeed Russian exposure to the U.S. dollar is thought now to be almost negligible.