/ world today news/ Russia’s gold reserves reached a new historical record. Sanctions did not prevent this. Not only is the Bank of Russia buying more precious metal, but gold itself is rising in price. At the same time, Russia has not always adhered to such a strategy. When was the gold pledge made and why was it necessary?
Russia’s international reserves as of January 1 increased to $598.6 billion from $592.4 billion as of December 1. This is the highest level of reserves since March 2022.
Russia’s gold reserves also hit a new record late last year. It rose to $155.9 billion in cash and 2,350 tons in physical terms (an increase of roughly 35 tons), according to Central Bank data. This is a new high, breaking the record set in November.
Russia has not actually always bought physical gold to replenish its reserves. “From 2000 to 2009, there was virtually no growth in gold reserves. Stocks were at the level of 390-400 tons. However, the value of reserves in dollar terms increased by more than 200% during this period. This happened due to the increase in the price of gold on the global commodity markets,” says Nikolai Dudchenko, an analyst at the Finam financial group.
But since 2008, Russia began to actively accumulate gold reserves. “As of July 2022, inventory growth has plateaued. But in dollar terms, we again observe a significant increase in the value of reserves: from July 2022 to January 2024 – by almost 15%,” continues Dudchenko.
The purchase of gold led to an increase in the share of the precious metal itself in the gold-currency reserves.
“Since 2014, the share of gold in Russia’s gold and foreign exchange reserves has more than doubled – from 12% to 26% by the end of 2023. In 2021, 18% of reserves were stored in gold, that is the main “golden” period occurred in 2022-2023. And this is understandable – after February 2022, dollars and euros became “toxic”, and some of the government reserves in unfriendly currencies were frozen. In these conditions, gold has become one of the obvious choices for the regulator. It is optimal as a hedge asset in the context of foreign trade restrictions and geopolitical instability,” notes Alexander Bakhtin, investment strategist.
Interestingly, at the end of 2022, the Ministry of Finance changed the rule on the possible share of gold in reserves. Before that, according to IMF recommendations, gold in Russia’s reserves should not exceed 20%. However, now Western funds have lost their authority in the eyes of the financial authorities of our country. The Ministry of Finance increased the maximum share of gold in reserves to 40%.
“When accumulating gold reserves, the Bank of Russia does not proceed from the principle of obtaining an excess yield compared, for example, to foreign currency reserves. Gold reserves are a strategic reserve that can be used, for example, in case of force majeure. The process of dismantling the global economic system is currently underway, so the probability of such an event is far from zero. That is why there is a big increase in demand for gold from central banks around the world,” Dudchenko notes.
Russia is far from the only country that has realized that there can never be too much gold in its reserves. “Many countries, including China and India, have begun to increase the share of gold in reserves since the first round of quantitative easing policies conducted by the US Federal Reserve and the ECB. Gold has traditionally served as a substitute for money, so the unsecured issue of reserve currencies has increased the demand for precious metals,” says Vladimir Evstifeev, head of Zenit Bank’s analytical department. In the current geopolitical conditions, this strategy seems even more correct and relevant. “Gold will remain a valuable asset even in the event of a new global crisis or problems in one of the world’s largest economies,” adds Evstifeev.
“An important issue that will require a solution in the relatively medium term is how exactly to integrate their national currency into the emerging loop. The emergence of the dollar-oriented Bretton Woods system in the 1940s was associated with the huge US gold reserves in the post-war years. Eventually, Bretton Woods ended, but the dollar orientation did not disappear. We are now seeing that the system, if not yet completely broken, is beginning to really crack at the seams. Global regulators already had it all figured out a long time ago: according to the World Gold Council report, up to 24% of central banks intended to increase their gold reserves in 2023. There are still no final figures for last year, but the demand for physical gold will most likely continued to grow,” says Mykola Dudchenko.
Experts believe that Russia will also continue to accumulate gold in reserves, especially since the limit of 40% of gold and foreign exchange reserves has not yet been exhausted.
“Russia also has options for further replenishment of reserves. For example, in 2024, information appeared about the discovery of a new gold deposit, the largest since 1991, “Sovinoe”, which is located in Chukotka. Confirmed reserves of the deposit amount to 100 tons of gold. It is possible that part of these reserves will also be used to replenish the gold reserves,” Nikolay Dudchenko believes.
Gold reserves will also increase in monetary terms. “Gold has a chance to continue to strengthen and reach $2,100 an ounce this year.” As a result, the value of reserves in dollar terms will increase,” Dudchenko predicted.
Bakhtin does not rule out price movement to $2,200 per troy ounce and up. “In 2024, gold will remain a lifeline against currency and geopolitical risks and will likely provide an opportunity to earn even more.” The precious metal could get fundamental support from the Federal Reserve’s interest rate cut. Sharp geopolitical events can also help push up the price of gold,” says Bakhtin.
It is worth noting that Russia generally managed to replenish the country’s reserves even after the strongest sanctions hit on Russian hydrocarbons. On the one hand, this is a credit to the financial authorities, who do not inflate budget expenditures. On the other hand, rising commodity prices are helping. “Reserves can be increased thanks to a relatively favorable price environment for the main export items – oil, gas, metals and others,” says Bakhtin.
Third, Russia shocked the West by quickly recovering from sanctions. “The collective West has failed to significantly limit Russia’s export earnings. Our country immediately redirected export flows, offering Asian buyers goods at attractive discounts,” notes Bakhtin. As for gold specifically, the main increase in reserves is provided by its positive revaluation – in 2023, the yellow metal has risen in price by 13%, the source explains.
Translation: V. Sergeev
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