Russia gold buying accelerated in October with the Russian central bank buying a very large 48 metric tonnes or 1.3 million ounces of gold bullion. This is the largest addition of gold to the Russian monetary reserves since 1998 and could be seen as a parting ‘gift’ by Prime Minister Putin to his rival ex-President Obama.
The Russian central bank gold purchase is the biggest monthly gold purchase of this millennium. Concerns about systemic risk, currency wars and the devaluation of the dollar, euro and other major currencies has led to ongoing diversification into gold bullion purchases by large creditor nation central banks such as Russia and China.
Clearly the central bank was taking advantage of the stronger ruble – which has made gold cheaper in local currency – to buy more gold.
“By contrast, the Chinese central bank bought only around four tons of gold last month – the second-lowest gold purchases since China began publishing monthly figures back in June 2015. The currency is likely to have played a role here, too – the yuan has been depreciating noticeably since the end of September.”
However, the Russian Central Bank has quietly been buying huge volumes of gold over the last 10 years. This diversification into gold accelerated since the financial crisis and since relations with the U.S. deteriorated in recent years. Russia bought gold systematically both when the ruble was strong and when it was weak.
In 2015, Russia added a record 208 tons of gold to her reserves compared with 172 tons for 2014. According to the World Gold Council, only the central banks of the U.S., Germany, Italy, France and China currently hold larger gold reserves than Russia.
The Central Bank of Russia has outpaced the People’s Bank of China (PBOC) by nearly 150 tonnes in the last seven years, and has been the world’s largest central bank buyer of gold reserves for some time. This trend is expected to continue.
Total gold mining production globally is around 3,200 metric tonnes per year. Thus, Russia’s purchase of 48 metric tonnes is around 1.5% of total annual global gold production. This is a very large amount for one country to buy in just one month.
Some of the gold bought will have come from Russian gold production which is currently at about 26 metric tonnes per month. 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 and China in first place.
The Russian central bank is buying all of Russian gold production and sometimes buying gold on the international market. This demand is solely from the Russian central bank. There is little data regarding investor, high net worth (HNW) and ultra high net worth (UHNW) individuals including family offices who are diversifying into gold in Russia.
Russia is an increasingly wealthy nation with thousands of millionaires and hundreds of billionaires including mega rich oligarchs. It seems likely that some of these Russian investors are also diversifying into gold.
Clearly, Russia puts great strategic importance on its gold reserves. Both Prime Minister Medvedev and President Putin have been photographed on numerous occasions holding gold bars and coins. The Russian central bank declared in May 2015 that Russia views gold bullion as “100% guarantee from legal and political risks.”
Prudent investors are following Russia’s lead by diversifying and having an allocation to physical gold coins and bars.