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Russia buys record amounts of gold

Section: Daily Dispatches

By Henry Sanderson
Financial Times, London
Thursday, January 29, 2015

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.

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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.

"There is no attraction for the Russians to be doing anything which is helpful to the US and Europe," said Ross Strachan of GFMS, a metals research group at Thomson Reuters, which compiled the figures. "Given the sanctions ... gold is one asset which it can purchase which doesn't do that."

Russia's central bank purchased 152 tonnes of gold worth $6.1 billion 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.

"This is a clear positive for the gold price," said Matthew Turner, analyst at Macquarie. "If central banks had not purchased that gold, it would have been bought by private investors or jewellery consumers, and this would likely have required a lower gold price."

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 $10 billion. Russia's total international reserves amounted to $385 billion at the end of December, compared with more than $500 billion a year earlier.

"We are still a long way off Russia needing to sell gold," Mr Turner 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.

Interest was also strong from central Asian states. Kazakhstan bought 46 tonnes through 2014 and Azerbaijan 10 tonnes, according to the survey. Iraq also acquired 48 tonnes in the first half of the year.

Gold has rallied more than 7 per cent this year due to renewed demand for a safe haven asset amid turmoil in the eurozone and weaker global growth.

"While official sector purchases are forecast to continue, it appears unlikely, given low international oil prices and growing deficits in many purchasing nations, that buying will accelerate," the Thomson Reuters report said.

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