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Russia's Central Bank Chief: Love Of Gold Stems From Need To Diversify

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Russia’s Central Bank Chief: Love Of Gold Stems From Need To Diversify

(Kitco News) - Russian gold buying spree is fueled by the need to diversify in order to anticipate and protect the country from economic and geopolitical risks, according to the Russian central bank governor Elvira Nabiullina.

Russia’s total gold reserves stand at around 69,700,000 ounces or 2,167.9 tonnes, the central bank said in April, with gold representing about 18% of the bank’s total reserves. 

“You see we try to diversify our international reserves composition. Because we estimate all the possible risks, economic and geopolitical risks,” Nabiullina told CNBC on Friday.

Russia has been one of the most active gold purchasers in 2018 and the beginning of 2019. During the first quarter of 2019, Russia acquired 56 tonnes of the precious metal.

Another possible reason why Russia has been wanting to hold more gold is to diversify away from certain currencies.

“We try to understand the long-term dynamics of different types of currencies and the needs of our economy for using this currency and the process of taking this decision about the structure of these reserves,” Nabiullina noted.

During the last decade, Russia’s gold reserves have been steadily climbing, with acceleration in pace beginning in 2014, according to the World Gold Council’s data.

In 2018, Russia overtook China as the world’s fifth largest official sector gold holder, preceded only by France, Italy, Germany and the U.S.

Analysts have suggested that Russia is buying up gold to diversify against the U.S. dollar.

“[Russia is] finally able to execute on a long-term desire to rebuild their [gold] inventories and to diversify away from the dollar,” CPM Group managing director Jeff Christian told Kitco News in the past

Russia’s share of U.S. dollars in its reserves fell from 46% to 22% last year, noted analysts at the Bank of America Merrill Lynch.

Russia’s trend is part of a bigger move by central banks around the world to buy more gold, with a total of 651.5 tonnes of gold purchased globally by central banks last year — the largest amount since 1971.

“What is more interesting to understand in the case of Russia … is not just these large numbers, but the trend. Emerging market central banks have been buying gold fairly consistently since 2010 .. because central banks are looking to diversify their reserves, they are looking for safety and gold provides that to them,” World Gold Council director of investment research Juan Carlos Artigas told Kitco News at the beginning of April. 

At the time of writing, June Comex gold futures were trading at $1,287.60, down 0.09% on the day. 

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