Russia: A Prominent Player in The Global Gold Market
The comments below are an edited and abridged synopsis of an article by Stephen Flood
Geopolitical tensions between Russia and the US are heating up again. The Wall Street Journal (12/07) reported:
“President Biden warned Russian President Vladimir Putin that the US and its allies would meet a military invasion of Ukraine with strong economic penalties, moves to bolster Ukrainian defenses and fortify support for Eastern European nations.”
This comes days after the Russian finance minister announced that Russia planned to add $6.7 billion to its gold and foreign exchange reserves over the next month.
Prior to putting gold purchases on hold at the beginning of 2020 due to a slump in oil prices, the Covid-19 pandemic, and other geopolitical risks, Russia had added an average of 205 tonnes of gold to its official holdings since 2015. At 2,302 tonnes, Russia has the 5th largest gold holdings behind the US, Germany, Italy, and France.
The increase in Russia’s gold reserves is part of a multi-year drive to reduce the country’s exposure to US dollars and the euro.
The campaign began in earnest after the US put sweeping sanctions on Russia in 2014 in response to Russia’s backing of separatist groups in eastern Ukraine. Three of Russia’s largest state-owned banks were cut off from the US economy.
Prior to the 2014 sanctions and the ensuing de-dollarization plan, Russia had amassed large US dollar reserves from exports of oil and gas.
In the coming years, Russia will continue to want to diversify the monetization of its energy production into holdings that do not involve American, European, or any other country’s rules. Looking at pre-Covid data, that would put Russia’s gold demand at over 200 tonnes per year for the next six to eight years.