Russia accounted for about one-third of central banks’ gold purchases last year as the country spent more on the metal than at any time since the break-up of the Soviet Union amid escalating tensions with the west and a collapse in the value of the rouble.
Central banks around the world bought a net 461 tonnes of gold in 2014 — 13 per cent higher than the previous year and the second-highest level since the collapse of the gold standard in 1971 — as they continued to diversify their currency reserves following the financial crisis. They have added 1,800 tonnes to their holdings in the past six years.
Moscow’s shopping spree of the yellow metal was driven by a desire to shift away from a dependency on the dollar and provide support to the beleaguered rouble. Russia’s currency has lost half its value against the dollar in the past year on the back of the plunging oil price as well as western sanctions. The central bank’s foreign currency reserves, mainly US and European government bonds, have also fallen.
Russia’s central bank purchased 152 tonnes of gold worth $6.1bn at today’s prices — an increase of 123 per cent compared with the previous year — in the first 11 months of 2014, according to GFMS estimates.
Analysts also said Russia’s purchases might have been due to the buying of domestically produced gold that could not be easily sold overseas due to sanctions.
While Russia was a strong buyer this year, analysts say purchases could slow and the country could become a seller if it continues to liquidate its reserves to support the domestic currency.
During Russia’s last financial crisis in 1998, the central bank’s gold reserves fell by 118 tonnes, as the country’s foreign exchange holdings dropped below $10bn. Russia’s total international reserves amounted to $385bn at the end of December, compared with more than $500bn a year earlier.
“We are still a long way off Russia needing to sell gold,”Matthew Turner, analyst at Macquarie said.
The Thomson Reuters survey is based on data provided to the International Monetary Fund as well as its own estimates on central banks that do not provide data.