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Russia Gold Buying Is Back – Buys One Million Ounces In January

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21 Feb 2017Gold Seek

Russia gold buying returned in January with the Russian central bank buying a very large 1 million ounces or 37 metric tonnes of gold bullion.

The increase in the gold reserves came after Russia did not buy a single ounce in December – a move seen as potentially a signal or an olive branch to the U.S. and the incoming Trump administration.

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It also came after Russia had accelerated its gold buying in the final months of the Obama Presidency. October 2016 saw an increase of 1.3 million ounces or 48 metric tonnes and this was the largest addition of gold to the Russian monetary reserves since 1998. Indeed, it was the biggest monthly gold purchase in this millennium for the Russian central bank.

November 2016 saw another increase of 1 million ounces. Some analysts saw the increased Russian gold buying as a parting ‘gift’ and warning shot by Putin and Russia to his rival outgoing President Obama and the monetary and financial elites in the U.S.

Russian gold reserves increased a very large 199.1 tonnes in 2016 alone.

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Concerns about systemic risk, currency wars and the devaluation of the dollar, euro and other major currencies has led to ongoing diversification into gold bullion purchases by large creditor nation central banks such as Russia and of course China.

There was silly speculation in 2013, 2014 and 2015 that the financial challenges facing Russia and the depreciation of the ruble could lead to Russia selling some of its increasingly large gold reserves. We pointed out on Bloomberg TV at the time that this was highly unlikely and pointed out that Russia was much more likely to sell some of its very large dollar and euro reserves and was more likely to continue to diversify into gold.

Russia has been steadily buying bullion since before the global financial crisis and is now the sixth-biggest holder of gold reserves internationally – after the U.S., Germany, Italy, France and the IMF.PHYS01_Animated_Gif_2_MPU

The monetary diversification accelerated during the global financial crisis and in recent years. It has more than tripled its gold reserves since 2005 and holds the most gold since at least 1993, IMF data shows.

Although, it is worth noting that countries like Lebanon, Egypt, Laos, Pakistan, Kazakhstan and Turkey all have a much bigger share of gold in their foreign exchange reserves than Russia does – suggesting the recent trend is likely to continue. Especially if politics intercedes and the relationship between Russia, Trump’s U.S., the EU and NATO worsens again in the coming months.

Russia places much strategic importance on its gold reserves. Both President Putin and Prime Minister Medvedev and have been photographed on numerous occasions holding gold bars and coins. In May 2015, we pointed out how the Russian central bank views gold bullion as “100% guarantee from legal and political risks.”

Astute, risk aware investors are following Russia’s lead by diversifying and having an allocation to physical gold coins and bars.

 

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The Gold Market review 2016

Gold Market price performance

Despite post-Brexit uncertainty and pessimism, overall 2016 was a good year for the price of Gold, showing strong gains up until September (up 25%) but then falling in Q4, averaging out with a price increase of 8% for the year. For UK holders of gold, the Brexit-induced weak Pound boosted this performance to an incredible 30% gain.

Investors took advantage of the lower prices in Q4, leading to a surge in the bar and coin market bringing the annual total sales to 1,029.2 tons (-2% yoy). This was the best quarter for bars and coins since Q2 2013; a welcome relief for many, as the early lack of demand had some investors concerned.   Europe is the second-largest bar and coin market in the world, but China performed strongest in this sector with an annual increase of 25% (it’s highest since 2013).PHYS01_Animated_Gif_2_MPU

Gold demand

The demand for gold-backed ETF’s was the second-highest on record (and highest since 2009), driving these price gains and contributing to the increase in global demand for gold by 2%.

India’s gold market suffered in 2016, and consequently, the year saw a seven-year low for jewellery demand.  With weaknesses also in China, these contributed towards a global 15% decline.   Strikes, regulations, demonetisation and higher prices meant that Indian demand alone was 148.3 tons lighter than 2015 – the biggest yearly decline recorded by The World Gold Council.

Due partly to the pressure on FX reserves, Central Bank purchases around the world slowed to 384 tons (down by 33%).  With Russia, China and Kazakhstan accounting for 80% of the purchasing.

Despite first-half losses in the Technology sector, there is good news with more new uses of gold being discovered; including sensors made from gold nanoparticles and gold bonding wire in the increasing use of fingerprint and iris sensors.  A 4% increase in technology Gold usage in Q4 minimised losses in this sector to 3% for the year.

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Prospects for 2017

It’s too early to suggest what this means for 2017 but the 2016 increases are mainly due to unsettled conditions around the world, which are undeniably set to continue into 2017.  So if you haven’t done so already, it may be worth considering a financial review of your assets. With low interest rates and a busy electoral calendar in Europe, the outcomes of Brexit still undetermined and a Trump administration causing problems both domestically and internationally, it seems 2017 is certainly going to be another year of uncertainty!