- Gold and fx reserves are “additional financial cushion” for state in
face of “external uncertainties”
– Russia bought another 77 tonnes of gold in Q3
– Ruble volatility does not create risks for financial stability in Russia
– Russia intends building fx and gold reserves to $500 billion in coming
years
– Gold is a “100% guarantee from legal and political risks”
Russian central bank governor, Elvira Nabiullina spoke about Russia’s gold
and foreign currency reserves today saying Russia intended building them up
to $500 billion in the coming years. More importantly, she confirmed that
Russia continues to see gold reserves as an important monetary asset –
in her words as a “financial cushion.”
According to Russian news agency TASS, Nabiullina said: “Regarding gold and foreign
currency reserves, we have the desired benchmark of $500 billion, and not in
the three-year term, it could be 5-7 years and more.”
Reuters reported that Russia does not have a target for
the volume of gold in its reserves: “Nabiullina also said the regulator
did not have a set target for the volume of gold in its reserves.”
Russia like other central banks, sees gold reserves as a form of monetary
hedging and financial insurance: “We believe it is necessary in terms of
creating additional financial cushion for the state in the face of such
external uncertainties,” Nabiullina said.
Russia and China have been the leading official sector gold buyers over
the last 15 years. Russian central bank officials have previously said that
Russia views gold
bullion as “100% guarantee from legal and political risks”.
Russia is now the seventh biggest holder of gold reserves after the U.S,
Germany, the IMF, Italy and France and the rising gold power China. Russia
has more than tripled its reserves since 2005 and holds the most gold bars
since at least 1993, IMF data shows.
Gold remains a large part of many central banks’ reserves, despite
stopping backing paper and the electronic currency with gold in 1971.
Nations globally have been increasing their gold holdings in recent years,
a reversal from two decades of selling. China, Kazakhstan, Ukraine and
Belarus are among other nations that have been accumulating gold.
Russia has been steadily buying bullion since 2007 and the advent of the
global financial crisis. Russia was accumulating gold even prior to tensions
with the West and international sanctions over the Ukrainian conflict.
In the event of relations further deteriorating with the U.S., UK and
certain EU countries, we would expect Russia to intensify their selling of
dollar reserves and accumulation of gold which would be very supportive of
gold prices. Indeed, were Russia to become aggressive in this regard and
currency wars intensify, Russia may elect to intensify its gold buying which
would put pressure on an already strained small, “fractional reserve”
physical gold market.
Central bank buying remains strong with banks accumulating an impressive
175.0 tonnes of gold in the third quarter – the second highest quarter of net
purchases on record.” Russia was again the largest single buyer with 77
tonnes of gold added to its reserves.
Gold is “additional financial cushion” for all who own it in the face of
the considerable “external uncertainties” of today. In the next financial
crisis, physical gold held outside the banking system in safe vaults in safe
jurisdictions will prove to be a “financial cushion” to individuals, companies,
pension funds, family
offices, and indeed nations.
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Key Storage Must Haves
DAILY PRICESToday’s Gold Prices: USD 1083.75, EUR 1006.60 and GBP
712.08 per ounce.
Yesterday’s Gold Prices: USD 1087.60, EUR 1014.03 and GBP 716.21 per
ounce.
(LBMA AM)
Gold gained slightly yesterday closing up $0.10 to finish at
$1084.60. Silver also gained throughout the day and closed up $0.01 to
$14.31. Platinum lost $5 to $874.
Gold prices have slid in 10 of the last 11 COMEX trading sessions (see
chart above) after yesterday’s very marginal higher close. Gold has fallen
back to the lowest level since early August – half decade lows in dollar
terms. It looks very oversold on a few measures and is due a bounce.
As we wrote this week, the upside potential for gold and silver far
outweighs the downside risk. On a 5 to 10 year time horizon, the outlook is
very positive.
However, in the short term, gold was badly damaged technically again
this week and further weakness is quite possible.
$1,000 to $1,050 per ounce on the downside is possible and previous
resistance could become support. At the top when gold was over $1,900 and
there were some really extreme bullish price calls we warned that gold was
due a sharp correction and that gold could replicate the 1970s bull market
when gold fell nearly 50%. At $1,085 per ounce, we are near those levels now.
With gold close to a half decade low, we are seeing some of the worst
sentiment towards gold from the retail investment public in many years. From
a contrarian perspective that suggests that we are close to a bottom.
Gold will likely bottom even before the Fed announces its interest rate
policy decision on December 15/ 16. If there is a rate hike gold might see
one last bout of weakness. Although that should be shallow and short given
the scale of losses in last three weeks.
The Fed matters in the short term but it is only one factor. A far more
important factor is actual physical supply and demand and these factors are
very supportive for gold (see Gold
Bullion Demand Surges 27% In Q3 – New Chinese “Buying Spree”) as
we had towards the increasingly important Chinese New Year.
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