Russia increases gold reserves again; likely to continue buying

Jul 21, 2015 - 2:53 PM GMT
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Russia once again increased its gold reserves in June, according to a statement on its website this week and analysts believe this is likely to continue throughout the year.

The Central Bank of Russia bought 24 tonnes of gold in June, bringing overall first-half purchases of the metal to 67 tonnes.

Its total gold reserves now stand at 41 million ounces or around 1,275 tonnes, according to a statement on its website – making it the seventh largest holder of the metal in the world, following news that China disclosed the first increase to its reserves in six years last week.

But buying is likely to continue throughout the year, particularly as Western sanctions continue to place pressure on the Russian authorities.

“The Russians increasing gold reserves seems to be a trend that has been established – there is no reason to believe they won’t continue to do so as its easy for them to buy domestic production as they don’t need any foreign currency – they can just print roubles,” Société Générale’s Robin Bhar told FastMarkets.

Commerzbank’s senior commodity analyst Carsten Fritsch agrees, ” It makes a lot of sense for the Central Bank of Russia to accumulate gold,” he said. “This will diversify its reserves and increase the part of the reserves that are not vulnerable to any Western sanctions. Moreover, the share of gold in its reserves is still lower than that in Western countries,” he added.

In 2014, Russia bought more gold in than in any year since at least the break-up of the Soviet Union.  The country acquired 173.1 tonnes according to World Gold Council figures – purchases after April averaged almost 20 tonnes per month.

The inflow of gold coincided with a consistent decline in the rouble, which hit an all-time low in December 2014 at 79.52 against the dollar, as the price of oil and Western sanctions battered the Russian economy. The rouble has since recovered to around 56.89 after several interventions by the central bank.

However, the Russians buying up more gold doesn’t necessarily present a bullish factor to the market.

“I don’t think there’s much being bought on the open market, obviously there will be some, but I don’t think it’s a huge amount – most will likely come from buying domestic production,” Bhar said.

In 2014, Russia was the third largest gold miner in the world at 266.2 tonnes, just six tonnes short of Australia in second place.  As a result, Bhar says there won’t be too much impact on the gold price.

“Like with China – which accumulated its gold from a number of ways but likely through domestic production – there will be only be a minor impact on the price – as they don’t necessarily need to buy it on the open market.”

China is the world’s largest gold mining country, it produced 462 tonnes of gold in 2014.

Discounting any retrospective analysis on Chinese buying, official sector purchases accounted for 588 tonnes of gold on a net basis in 2014 according to Metals Focus data – the second highest since the mid-1960s. Currently, the firm expects net official sector purchases to continue this year at a pace of 100-150 tonnes per quarter.

Though, others believe the announcement of China’s official reserves could have a positive impact on the gold market,