Russia’s Central Bank purchased a record amount of gold in the first 11 months of 2014 as part of an effort to provide support to the struggling ruble and reduce dependency on the dollar, reports said.
Russia’s gold purchases accounted for a third of the world’s total of 461 tons, according to research by Thomson Reuters GFMS. The amount bought went up 123 percent from the previous year to 152 tons, currently worth $6.1 billion, the most Russia has spent since the collapse of the Soviet Union.
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Given the tension between the U.S. and Russia, it’s more likely Russia will sell dollar assets and buy gold, said Mark O’Byrne of GoldCore, according to RT.
“That will be done both to protect the ruble and potentially to position the ruble as a reserve currency in the long-term, but also as a signal to Washington, ” he said, adding that it’s almost like a geopolitical move showing that Russia has a monetary and financial alternative and it can retaliate if economic sanctions were to deepen.
“Increasing the share of gold in foreign exchange reserves is not a short-term speculation, it’s a long-term diversification, ” O’Byrne said.
Russia’s currency has lost half its value against the dollar in the past year on the back of plunging oil prices as well as western sanctions. The central bank’s foreign currency reserves, mainly U.S. and European government bonds, have also fallen.
“There is no attraction for the Russians to be doing anything which is helpful to the US and Europe, ” said Ross Strachan of GFMS, a metals research group at Thomson Reuters, which compiled the figures. “Given the sanctions…gold is one asset which it can purchase which doesn’t do that.”
Analysts also said Russia’s purchases might have been due to the buying of domestically produced gold that could not be easily sold overseas due to sanctions.
Gold has rallied more than 7 per cent this year due to renewed demand for a safe haven asset amid turmoil in the eurozone and weaker global growth.
Analysts from GFMS partially attribute the increase in Russian gold purchases to the buying of the metal from domestic production that increased 9 percent year-on-year. At the same time, it won’t be easy to sell these volumes overseas due to sanctions, they say.
The current spot price for gold is $1, 263 per ounce which is below the recent five-month record of $1, 300.
Russia was the second biggest gold producer in 2014. Last year it extracted 272 tons of gold, second to China’s 465.7 tons but just ahead of Australia’s 269.7 tons.
The U.S. still has by far the world’s largest supply of gold, over 8, 100 metric tonnes, while Russia, the world’s 7th largest holder, has 918.0 tonnes, less than Germany (#2) and China (#5), among others.