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Is Russia Selling Its Gold Reserves?

By Neils Chrsitensen of Kitco News
Friday December 12, 2014 1:54 PM

(Kitco News) - Analysts appear mixed as to whether or not Russia could be selling its gold reserves to prop up its faltering currency and economy.

Speculation started to rise on the size of Russia’s gold holdings Thursday, after news agencies reported a drop in the Russian Federation’s international foreign reserves. According to weekly data provided by the Central Bank of Russia, as of Dec. 5, it held $416.2 billion, down from $420.5 billion reported a week earlier.

Vladimir Putin, President of the Russian Federation

However, the central bank’s foreign reserves include foreign currencies, Special Drawing Right holdings, reserve positions in the International Monetary Fund and monetary gold. There have been no specific reports that Russia is selling its gold.

Russia has been a significant buyer of gold in 2014. According to IMF data, compiled by the World Gold Council, as of October the country has bought 133.6 metric tons of gold. It’s biggest purchase was made in September when it added more than 37 metric tons of gold to its reserves.

Julian Jessop, head of commodity strategy at Capital Economics, said that the decline in Russia’s reserves is probably the result of the central bank selling other “low-yielding government bonds” that it is holding.

“I haven’t seen their foreign reserves but I don’t think that Russia is selling its gold. The last thing they would do is sell their gold,” he said.

Peter Hug, global trading director at Kitco Metals Inc., agreed. He said that at first glance it is unlikely that Russia would sell its gold.

Jeff Nichols, managing director of American Precious Metals Advisors and senior economic advisor at Rosland Capital, said it is difficult to speculate on what the Russian government would do or the makeup of foreign reserves. Although it’s unlikely Russia would sell its gold reserves, he added that he wouldn’t rule out the move.

“I don’t think [the Russia central bank] anticipated the drop in oil prices or the impact the economic sanctions has had on the country’s economy,” he said.

Nichols added that he speculates that even if Russia did sell its gold, it would probably have been to another central bank in an “off-market” transaction.

“They don’t want to do anything that would be detrimental to the price of gold right now,” he said.

Peter Buchanan, senior economist at CIBC World Markets, said that he is not surprised that the central bank is digging into its foreign reserves and doing everything to prop up the declining ruble.

Although he wouldn’t rule out gold reserves sales, Buchanan added that “they would probably prefer to hold gold than U.S. dollar.”

On Thursday, the Russian central bank surprised markets as it raised interest rates a full percentage point to 10.5%; however, that hasn’t stopped the currency’s decline as it hit a new all-time low against the U.S. dollar. The ruble has lost more than 40% against the greenback.

According to analysts, along with economic sanctions, the country is hurting as a result of lower oil prices. Oil prices have slid to their lowest price in more than five years with West Texas Intermediate trading below $60 a barrel for the first time since July 2009. As of 1:54 p.m. EST, January WTI crude was trading at $58.14 a barrel.

By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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