/ world today news/ The Russian Central Bank unexpectedly announced that it sees no point in accumulating gold in the country’s reserves. This is a highly unusual statement, especially considering that the central bank has been actively buying gold for the past ten years, setting an example to other countries and its own population. And that strategy paid off. What happened?
The Central Bank of Russia considers it inexpedient to accumulate gold in foreign exchange reserves under the current conditions. This was stated by the deputy chairman of the regulator Alexey Zabotkin. According to him, this will provoke an increase in the money supply and inflation. This is an unusual change in the Central Bank’s strategy. In fact, for the past ten years, the Central Bank has been regularly buying gold, due to which it was possible, among other things, to save part of the reserves from Western sanctions.
And in general, gold has always been considered and remains a safe asset in which it is good to save money during crises. Why does the Russian central bank suddenly no longer need gold?
Zabotkin spoke about the refusal of the Central Bank to buy gold in response to the proposal of the chairman of the organization of the gold mining branch Sergei Kashub to support the gold mining industry by buying up all the precious metals that have not been sold on the market. To which the representative of the Central Bank replied that the Central Bank does not support individual sectors of the economy.
“Until now, the Russian authorities talked about de-dollarization of the economy, and the Central Bank set an example to the population with its actions. Russia, not in a year or two, but in a whole decade, bought two-thirds of the gold mined in the country by 2020. When the arrests of our reserves abroad began, we managed to save 90 billion dollars precisely because they were stored in gold bars. No one could steal them from us. Then VAT and even personal income tax were abolished for the purchase of gold bars. As a result, the population bought 10 tons of gold in the first half of this year. For comparison, this is how much the population bought gold in the previous three years,” says Alexey Vyazovsky, vice president of the Golden Mint company.
And now the Central Bank suddenly changes course and refuses to buy gold. “With this statement, the state actually sends a signal to the population that it does not believe in gold. Although people used to buy gold at 7000 rubles per gram and now it costs 3000 rubles per gram. But it is wrong to give such signals. Because gold is a long-term investment. Gold is still the most liquid asset. In terms of trading volume, gold is second only to US Treasury bonds,” the industry expert notes.
According to him, the Central Bank spoke incorrectly, as it responded to the appeal of the gold mining industry with a request for help. They really find themselves in a not very pleasant situation this year.
“The ruble has strengthened significantly and the profitability of gold mining for many has gone into negative territory. Also, due to the sanctions, not all gold bars can be sent abroad through friendly countries. The gold bars are stuck in the balance and are being dragged down. Previously, in such a situation, the state saved the gold mining industry by buying over 200 tons per year in its reserves. And now they have lost a permanent big buyer,” explains Alexey Vyazovsky.
Now the Central Bank apparently has a new god called the yuan, quipped the expert. Probably the yuan is bought in reserves, plus the yuan came out on top in terms of foreign exchange trading volume on the Moscow Exchange.
So, probably, instead of gold, the Central Bank has started replenishing its reserves with the currencies of those countries with which the trade turnover is growing and to which Russia is redirecting its exports. First of all, these are China, India, Turkey and other countries of Southeast Europe.
There is no accurate fresh data on the structure of Russian gold reserves, because against the background of a special operation, this data was classified. Therefore, one can only guess why the Central Bank decided to increase reserves instead of gold.
According to Vyazovsky, by refusing to buy Russian gold, the Central Bank is hinting to Russian miners that the “golden” times for them are over and they should start moving forward. “This is a hint that our prospectors should start entering Asian countries. Previous years they only had chocolate, they made super profits because the price of gold for many years rose in dollars and rubles because the ruble depreciated against the dollar. However, they have only invested in sales. After all, they had one guaranteed buyer – the Central Bank of the Russian Federation. Now they have to open branch networks to conquer the market of Southeast Asian countries, negotiate with local banks and so on. It is a highly competitive market, costs money and has its risks,” says the vice president of the Golden Mint.
According to him, miners have really accumulated “fat” in recent years, which they can use to enter new markets. If before the main buyers of Russian gold abroad were European countries, especially Great Britain, now happiness should be sought in India and China, where they love gold very much. Of course, it will not be easy to break through, but today absolutely everyone is engaged in redirecting export flows.
Investing in emerging market currencies may not be the best decision considering that the dollar is coming out on top today and all other currencies are falling hard against it. “Reserves could have lost 15% year-to-date just because the yuan fell so much. It is not clear how safe this story is because no one has lifted the secondary sanctions. China will most likely not bend, but India may bend to the US and block our rupee reserves,” warns Vyazovsky.
Gold is also falling against the dollar now as many major central banks raise interest rates in hopes of stemming record inflation, including the Federal Reserve and the ECB. However, gold is a long-term savings asset. “If you buy gold regularly, spikes in gold and the dollar are not your concern. Last year, gold reached an all-time high, now it has moved away from it, but in a long-term strategy, gold is still rising,” the source said. Gold’s heyday begins during periods of crisis that occur at regular intervals at least once a decade.
The central bank’s argument that buying gold increases the money supply, and the regulator’s main task is to monitor inflation, has caused skepticism among experts.
“Our money supply has been growing year after year, regardless of gold purchases. For example, in 2020, amid the pandemic, the Central Bank did not buy gold for reserves, but the money supply still grew significantly. It has more to do with the liquidity of the banking system and nothing to do with gold. After all, the Central Bank of the Russian Federation does not sell gold on the market. It just lies with him in ingots,” concludes Vyazovsky.
Perhaps instead of investing in metal, the state has decided to invest more in the real economy, in the development of import substitution, in its own industries and so on, hopes Artyom Deev, head of the analytical department at Amarkets.
Translation: V. Sergeev
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