Precious Metals Weekly Why is Russia piling up gold?
Group Economics Macro & Financial Markets Research Georgette Boele, tel.+31 20 6297789 Peter de Bruin, tel.+31 20 3435619
21 October 2015 • • • • •
There has been a steady increase in Russian gold reserves… …which has started since the global financial crisis This could be the result of a strategy to protect against commodity price volatility and a weaker ruble But most likely a way to support domestic gold miners… …and to become less dependent on the US dollar
Steady increase in Russia’s gold reserves
came to an abrupt end with the arrival of the global financial
Since the global financial crisis, Russia has increased its gold
crisis. Since then prices of Russia’s commodities have been
reserves at a steady pace of on average 0.3 million ounces per
volatile or diverging. Over the last few years gold has been
month and on average 3.5 million ounces per year. What are
relatively resilient to sharp falls in oil prices (see second graph
the reasons for this development?
on the right). Such developments could have urged the Russian government to increase its percentage of gold in its reserves.
Russian gold reserves Million troy ounces
45
…as well as a tendency of the ruble to weaken…
40
Since 2008, the Russian rubble has been on a downward
35
trajectory versus the US dollar, a move that has accelerated
30
since the annexation of the Crimea in 2014 and the sharp drop
25
in oil prices at the end of 2014 and beginning of 2015. A
20
sharply weaker ruble may support the attractiveness of
15
exports. But the reason for this ruble weakness was outright
10
negative for financial market sentiment towards Russia and ultimately plunged Russia into a financial crisis. The sanctions
5
that have been imposed by the US and the eurozone and the
0 95
00
05
10
15
huge capital outflows that drained Russia’s FX reserves have sharply reduced the availability of hard currency in Russia. As
Source: Thomson Reuters Datastream GFMS
Russia is a gold producer, a way to build international reserves
Gold price versus Brent oil price
is via buying domestically mined gold. This way this gold will
Gold price in USD
Brent oil price
2000
160
1500
120
1000
80
500
40
0
0 90
95
00
Gold price (lhs)
05
10
15
Brent oil price (rhs)
Source: Bloomberg, ABN AMRO Group Economics
Direction in commodity prices could have been a reason… As a major commodity producer and exporter (energy, gold,
not enter the international market. In a way it reduces its dependency on the US dollar for international reserve building.
Gold reserves as % of total, USD/RUB %
USD/RUB
40
80
35
70
30
60
25
50
20
40
15
30
10
20
5
10
0
0 00
05 Gold % of total (lhs)
nickel, aluminium and diamonds), the preferred situation would be stable and/or rising prices. The bull-run in commodity prices
Source: Thomson Reuters Datastream GFMS
10 USD/RUB (rhs)
15