The Russian central bank has been steadily increasing its gold reserves over the course of 2015, and the pace of the gold bullion accumulation appears to be quickening.
During August, the Central Bank of Russia purchased an additional 1 million troy ounces (roughly 30 metric tonnes) of gold bullion, the largest such boost in gold reserves in at least 6 months, when the bank bought about 30.5 tonnes of the yellow metal during March of this year.
Although Russia is far from the only nation increasing its gold reserves amid the economic turmoil that has arrested the global markets, it has been the world’s most active buyer of gold, on a state level, for financial purposes over the last 20 years. In fact, it’s tripled its gold reserves in just the last decade.
Russia is currently 6th among the world’s largest holders of gold as a reserve asset, trailing only China, France, Italy, Germany, and the U.S. (in ascending order). If the International Monetary Fund (IMF) was included, the fund would rank 3rd, pushing the Central Bank of Russia into the 7th place spot. The central bank currently has just shy of 1,319 tonnes (42.4 million troy ounces) of gold in its vaults.
Although it stands out, Russia hardly stands alone in its fervent accumulation of gold to backstop its banking system. Of note, China, Kazakhstan, Ukraine, Belarus—all nations in economic peril who are searching for stability—have also been adding to their gold holdings (among others) as a way to bolster their reserve assets and avoid becoming overleveraged with foreign currencies. That’s not to say that these countries have abandoned their forex reserves; Russia’s gold still makes up less than 15% of its total reserves, while China is even lower—just 2%.
By comparison, Western nations with large gold holdings like Germany, the U.S., France, and Italy apportion their reserves with gold accounting for more than two-thirds of the total value of those reserves.
Those joining Russia in this flight toward stability have helped reverse the strategy most central banks (notably, the Bank of England) employed during the 1980s and 1990s where they aggressively sold their gold onto the open market. Over the past few years, central banks around the world have, on whole, been net sellers of gold, instead.
The overarching story about Russia’s sanction-laden economy for much of the preceding year has been its attempt to support and stabilize its national currency, the ruble. Near the end of 2014, the ruble was absolutely tanking against the dollar, sliding just short of all-time lows.
In such scenarios, it makes sense to turn to gold, just as China has done in support of the yuan. Russia increased its gold reserves by 24 metric tonnes in June and another 13 tonnes in July, consistently stacking more and more of the metal as investors elsewhere soured on gold as a “dead asset” or “pet rock.”
Although the central bank’s efforts have not have especially profound effects on the Russian currency, the ruble’s tumble against its peers has certain ramifications for the country’s domestic gold market. In terms of rubles, the gold price has actually soared 60% year-over-year (as last autumn marked the beginning of the ruble’s worst losses).