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
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Precious Metals Weekly - Why is Russia piling up gold?
Russian annual gold supply, gold reserve increase Million troy ounces
10 8 6 4 2 0 -2 -4 00
05
10
Russian gold supply
15
Increase gold reserves
Source: Thomson Reuters Datastream GFMS
…or hoarding by a state institution Under the Russian Ministry of Finance there is a state institution “Gokhran” that is responsible for the State Fund of Precious Metals and Precious Stones of the Russian Federation. In the case of lower demand for rough diamonds, Alrosa (Russia’s diamond miner) sold at times diamonds to Gokhran. This way, the rough diamonds did not enter the market and therefore did not have a downward effect on rough prices. This could also have been the case for gold. Gold purchased by Gokhran could have ended up at the central bank via a transaction between the central bank and Gokhran. Gokhran’s holdings seem not to be part of Russia gold and foreign exchange reserves, though this reflects accounting principles as Russia would have had access to the gold reserves at any rate.
ABN AMRO forecasts End period Gold Silver Platinum Palladium
21-Oct Close 14 1,177 1,185 15.7 15.8 1,011 1,216 798 682
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,184 1,172 1,112 1,100 1,050 1,000 950 900 16.6 15.7 14.5 15.0 14.5 14.0 14.5 15.0 1,141 1,081 910 900 875 850 900 1,000 736 674 652 650 625 600 625 650
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
Q3 15 1,126 15.0 993 618
Q2 15 1,193 16.4 1,129 759
Q4 15 1,106 14.8 905 651
Source: ABN AMRO Group Economics
2015 Q1 16 Q2 16 Q3 16 Q4 16 1,170 1,075 1,025 975 925 16.0 14.8 14.3 14.3 14.8 1,075 888 863 875 950 700 638 613 613 638
2016 1,000 14.5 894 625
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Precious Metals Weekly - Why is Russia piling up gold?
Precious metals Gold prices per troy ounces Gold price in USD Gold price in EUR Gold price in JPY Gold price in CHF Gold price in GBP Gold price in INR Gold price in CNY Gold price in BRL Gold price in RUB Gold price in TRY Silver prices per troy ounces Silver price in USD Silver price in EUR Platinum prices per troy ounces Platinum price in USD Platinum price in EUR Platinum price in JPY Platinum price in CNY Palladium prices per troy ounces Palladium price in USD Palladium price in EUR Palladium price in JPY Palladium price in CNY Palladium price in BRL Palladium price in INR Palladium price in RUB Gold f orw ard rates LBMA 1 Month Gold Forw ard Off er rate BBA LIBOR USD 1 Month Gold 1 Month Lease rate LBMA 3 Month Gold Forw ard Off er rate BBA LIBOR USD 3 Month Gold 3 Month Lease rate Volatility 1 month gold option volatility 1 month silver option volatility 1 month platinum option volatility 1 month palladium option volatility COMEX & NYMEX positions NET LONGS - GOLD (COMEX) NET LONG ON SILVER (COMEX) NET LONG ON PLATINUM (NYMEX) NET LONG ON PALLADIUM (NYMEX) Total ETF positions Total Know n ETF Holdings of Gold Total Know n ETF Holdings of Silver Total Know n ETF Holdings of Platinum Total Know n ETF Holdings of Palladium Relative Gold/Silver ratio Gold/Platinum ratio Platinum/Palladium ratio Source: Bloomberg
Close
Change 1 Day in %
Change 5 days in %
Change YTD in %
1,177 1,037 141,280 1,128 762 76,645 7,473 4,621 73,862 3,417 Last 16 14 Last 1,011 890 121,341 6,417 Last 682 601 81,911 4,333 2,681 44,443 42,829 Last 0.07 0.20 0.13 0.10 0.32 0.22 Last 15.22 25.75 20.96 28.70 Last 118,494 58,626 28,781 12,212 Last 49,672,161 608,073,125 2,659,049 2,813,502 Last 74.31 1.16 1.48
0.09 -0.02 0.13 0.27 0.05 0.20 -0.01 0.84 1.06 0.13 Change 1 Day in % 0.20 0.16 Change 1 Day in % -0.70 -0.70 -0.53 -0.72 Change 1 Day in % -1.70 -1.79 -1.65 -1.76 -0.94 -1.46 -0.64 Change 1 Day in % -27.78 0.90
-0.59 0.64 0.58 0.55 -0.10 0.17 -0.15 2.19 -0.32 -0.68 Change 5 days in % -1.65 -0.85 Change 5 days in % 1.77 2.55 2.51 1.70 Change 5 days in % -2.33 -1.98 -1.84 -2.69 -0.37 -2.04 -2.49 Change 5 days in % -13.33 1.42
-0.65 5.58 -0.77 -4.50 -0.11 2.08 1.28 46.95 11.36 23.03 Change YTD in % 0.88 7.50 Change YTD in % -16.89 -11.30 -16.65 -14.93 Change YTD in % -14.54 -9.04 -14.58 -13.21 26.38 -12.08 -8.04 Change YTD in % 252.94 14.45
-13.64 -0.16
5.56 -1.28
0.00 23.88
Change 1 Day in % -0.73 -2.67 -6.87 -4.67 Change net 5 days 30,025 9,124 6,134 355 Change net 5 days 475,611 -583,193 -43,109 -86,644 Change 1 Day in % -0.23 0.68 1.03
Change 5 days in % -4.82 -6.17 -17.31 -8.03 Change net 1 Month 85,515 37,269 4,730 7,521 Change net 1 Month 890,441 -7,504,828 -155,279 -63,082 Change 5 days in % 1.53 -1.85 4.42
Change YTD in % -11.83 -13.25 28.20 32.67 Change net YTD 13,269 24,894 -1,169 -9,806 Change net YTD -1,766,519 -15,037,723 -64,845 -253,388 Change YTD in % -1.78 19.09 -2.59
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Precious Metals Weekly - Why is Russia piling up gold?
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