Russia: Gold Has No Market, Central Bank Is Forced To Take Over

In November 11th, according to foreign media reports, because of western countries' repeated sanctions, international investors took a wait-and-see attitude towards buying Russian gold, which led to Russian enterprises unable to sell gold abroad. The Central Bank of Russia could only increase its purchase plan and digest its yellow gold output.

At present, foreign banks have stopped buying Russian gold one after another, so most of the gold produced in Russia can only be bought by commercial banks in the country, such as Russian Federation savings bank (Sberbank) and Russian Foreign Trade Bank (VTB), and then sold to the Central Bank of Russia by these commercial banks.

People familiar with the matter said: "the Central Bank of Russia has no choice but to acquire gold that foreign banks are unwilling to take over. The central bank has bought most of the gold held by commercial banks."

Analysts pointed out that at present, Russian commercial banks are going through a difficult period, and the Central Bank of Russia is trying to save them, mainly in order to increase liquidity.

Data from the World Gold Association (WGC) show that Russia has significantly increased the volume of gold purchases this year.

Up to now, Russia has increased 115 tons of gold reserves, while the new reserves in 2013 and 2012 were 77.5 tons and 75 tons respectively.

Data released by the International Monetary Fund (IMF) in October 28th also pointed out that in September this year, the Central Bank of Russia has increased its holdings of gold reserves for sixth consecutive months, increasing its holdings of 37 tonnes of gold to 1149 tonnes in a single month.

After the outbreak of the financial crisis in 2008, the Central Bank of Russia deliberately dispersed its foreign exchange reserves and bought a lot of gold. In the six years after that, the total amount of gold reserves increased by 1800 tons.

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There will be no accumulation of gold for no reason. Gold reserves can be used to deal with the worst.

In the hypothetical case, even if Russia finds that its US dollar reserves are no longer useful, there is still plenty of gold as a substitute. "

Nick Brown, an analyst at the French Foreign Trade Bank (NatixisBank), said NickBrown.

Recently, the Russian Central Bank Vice President Ken Sen Nia (KseniaYudayeva) has said that if the sanctions continue in Europe and America, if necessary, the Russian central bank may use gold reserves to provide the necessary funds for imports.

But the current situation is that the Federal Reserve has withdrawn from the quantitative easing (QE) policy as scheduled, and the US economy has also entered a stage of stable recovery. The market's expectations for the Fed's interest rate increase are constantly increasing, resulting in a decline in investment demand for gold, and the recent warming up of empty gold.

Falling to a low level of nearly 4 years, in this context, if the Central Bank of Russia used gold reserves to import goods, it would be even more worthless.

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The sanctions imposed by the state on the Russian economy have not explicitly prohibited the purchase of gold, but foreign banks are still more cautious about their business dealings with Russia.

"If the situation is stable and the sanctions are lifted, the Central Bank of Russia will stop increasing more gold reserves," the source said.

More pessimistic, in November 10th, the Central Bank of Russia in the latest three year monetary policy strategy report is expected that the sanctions measures in western countries may continue until the end of 2017.

In addition, the Central Bank of Russia predicts that the economy will not grow in 2015, while the growth rate in 2016 will be only 0.1%. In 2015, capital investment will decline by 3.1%, and inflation will remain between 6.2% and 6.4% by the end of this year, far exceeding the 4.5% target set by the central bank.

The release of the three year Monetary Policy strategic plan is much more revised than the version released in September. In the draft issued at that time, the Central Bank of Russia estimated that there would be an economic growth of 1% in 2015, a growth rate of 1.8% to 2% in 2016, and that the oil price would return to more than 100 dollars per barrel.

But the latest forecast by the Bank of Russia is that oil prices will fall to $90 a barrel by the end of the sanctions in 2017.

Insiders pointed out that the two external shocks of global crude oil prices and the economic sanctions imposed by western countries on Russia have already hurt Russian economy and will have a lasting impact on the years ahead.