Russia Sitting On A Pile Of Gold

on Sep 17, 2012

A recent report from World Gold Council (WGC) revealed that Russia has been the largest buyer of gold over the past five years, Gold Investing News reported on 12 September 2012. The country has doubled its gold reserves, as its gold purchases for that period exceed 500 tonnes.

The report received mixed reactions, with concerns over the intentions of the Russian President Vladimir Putin voiced. Speculation on the subject are widely varied from assumptions that Russia may be contemplating some form of gold standard backing of the rouble.
Concerns are based primarily on the sheer volume of the purchases, but that alone shouldn’t be considered as indication of malicious intent by conspiracy theorists. It’s not uncommon for the central banks, especially in emerging markets, to buy large quantities of gold in attempt to diversify their reserves. In fact, WGC data shows that the official sector, central banks, is becoming increasingly active on the gold market. In the second quarter of 2012 it bought 157.5 tonnes of gold, which was more than two times the amount purchased over the same period the previous year. Russia’s contribution was only 22 tonnes.

!m[](/uploads/story/375/thumbs/pic1_inline.png)There are plenty of reasons why central banks, as well as private investors, might turn to gold. In the current economic situation, many investors have lost their trust in the dollar and the euro. Gold, on the other hand, has always been considered as a safe haven, and that makes it appealing, especially in times of unstable economy. Some, like the National Bank of Kazakhstan, have expressed their views on the subject very clearly.

With the current growth of its gold reserves, Russia is coming close to acheiving a goal set back in 2005, when Russia’s central bank announced its plans to increase the share of gold in its reserves from 5 to 10 percent. Russia is currently sitting on 918 tonnes, a mere one percent shy of the 10 percent target.
Mr. Putin, who, back then, was serving his second Presidency, supported the plan and, through the government, set out measures to stimulate the country’s gold industry. But the biggest increase of Russia’s gold reserves was achieved during the Presidency of Dmitry Medvedev from 2008 to 2012.

Russia, according to WGC, intends to increase its gold reserves by about 100 tonnes this year. But it is worth noting that Russia’s gold reserves, which in 1995 accounted for 60 percent of the country’s total reserves have been severely depleted since the fall of communism. So, in that respect, the country’s efforts to boost holdings are understandable.
The role of the official sector in keeping the gold market stable has been instrumental in recent years with the official sector having picked up much of the slack of dropping demand from private investors.


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