Russia Slows Gold Purchases in May
Russian Central Bank Adds 3.11 Tons of Gold to Reserves in May
The Russian Central Bank announced this week that its gold reserves had reached 47.6 million troy ounces (approximately 1,480 metric tons). The total included an additional 100,000 ounces (3.11 tons) of gold added in May.
The Central Bank of Russia added a record 208 tons of gold to reserves in 2015. Last year Russia suffered financially as international sanctions and plummeting oil prices took their toll on the rouble and the inflation rate reached double digits. According to the World Bank, oil is by far Russia’s largest export and represents about 15-20% of Russia’s GDP and the majority of government revenues. 2016 has started off better for Russia. The price of oil and gold have increased significantly in 2016 and have helped Russia improve its financial situation and reserves.
Earlier this month the Chinese central bank announced that it had added no gold to its reserves in May. Russia’s 100,000 ounce addition to her reserves was the lowest amount Russia has added since May 2015. The cessation of the People’s Bank of China’s gold purchases and the relatively small amount of gold added by the Central Bank of Russia may reflect the increasing price of gold. Both countries added heavily to their reserves throughout 2015 when the price was at multi-year lows, but have slowed their purchases in 2016 as the gold price has risen.
Despite the weakness in the Russian economy, the Russian Central Bank has bolstered its foreign reserves from about $350 billion a year ago to over $390 billion at the end of April 2016. The Russian Central Bank has a stated goal of increasing reserves to about $500 billion in the coming years.
As of May 31 2016, gold constituted about 15% of the Central Bank of Russia’s $387 billion reserves with her gold hoard valued at approximately $56 billion.
U.S. Treasuries as Part of Russia’s Foreign Reserves
In January 2014, Russia’s U.S. Treasury position was $131 billion. In reaction to U.S. inspired sanctions being placed on her, Russia sold a substantial portion of her U.S. Treasury holdings. Russian U.S. Treasury holdings reached a low of $66.5 billion in April 2015. Since then Russia has added back a portion of its U.S. Treasury holdings. As of April 2016, Russia held $82.5 billion in U.S. Treasury Securities.
The Gold Option
Russia’s pace of adding gold to reserves is the fastest in the world, surpassing China whose gold reserve additions over the past year are the second highest. Since 2009 Russia has added more than 850 tons of gold to its reserves more than China who added about 750 tons during the same time period.
As a result of Russia’s gold buying binge, Russia has vaulted into the top ten gold holding nations and is now the sixth largest.
The decision to add gold to reserves has paid off as the price of gold has risen nearly 20% over the past year, with most of the gain coming in 2016. Russian gold mining produces the third largest annual output in the world. Exchanging depreciating Roubles for a good portion of their gold mining output has helped increase the value of Russia’s reserves. By retaining an increasing percentage of its gold mining output the Central Bank of Russia has been in effect converting roubles into gold.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.