Another day another report about how Russia and China are moving closer together and stacking a lot more physical gold.
Gold is the great equalizer – it levels the economic / financial playing field for all concerned. No gold, no trade. No gold, no trust. Gold offers security, transparency, obscurity and stability all at the same time. Name another item that can be used as a commodity, money / currency and investment. Silver. Silver is the only other item that fits this mold and silver is currently not a Tier 1 asset where it is treated the same as any currency around the world – gold is, making gold a stand alone asset.
Russia has been acquiring physical gold, and more of it than anyone else in the world, for more than a decade. Russia understands the principals of gold that I just laid out above. China also understands this as well, but has not kept pace with Russia’s acquisitions of gold. While China holds a significant volume, it is a tiny fraction compared to their overall foreign exchange reserves. Currently, Russia’s gold hoard accounts for just short of 21 percent of their foreign exchange reserves compared China’s 2.7 percent. China’s economy is far greater than Russia’s and this accounts for some of the reasoning behind the massive difference.
Russia simply adds to their gold reserves each month without fail. The figures below do NOT include September 2019. We will let you know how much Russia added in September 2019 as soon as those numbers are available – usually during the second week of the month.
According to data from the Central Bank of the Russian Federation, Russia’s foreign exchange reserves reached a record high of $529.1 billion in August. Gold reserves were 2219.2 metric tons, or $109.5 billion, accounting for 20.7 percent of total foreign exchange reserves. It is the first time in 30 years that the share of gold in Russian foreign exchange reserves has exceeded 20 percent.
Russia’s central bank is increasing its gold reserves and has been the world’s largest buyer of gold for years. In the last 10 years, Russia’s gold reserves have more than tripled. Source
China has been known to just stop acquiring gold as they did between October 2016 and December 2018. China did not add one ounce to their official gold holdings. Then, as if someone said to China – “time to get back into the gold market” – China reentered the market and has been adding to their official gold holdings ever since. As of this publication China has not reported for September 2019 so we are not 100% they are still acquiring. My guess is, they are with ongoing economic tariffs and “trade war” directed at them from the west.
Compared with Russia, China’s gold reserves have not surged. Although China’s total reserves have reached 1,942.4 tons, its gold reserves only account for 2.7 percent of its foreign exchange reserves.
From China’s perspective, gold reserves are a vital part of international reserves and an important factor to diversify investment portfolios, but they are not the only substitutes for foreign exchange reserves. Nevertheless, since the price of gold assets is doing well, it does not rule out the possibility that China may follow Russia to increase gold reserves. Source
As we stated at the beginning gold is the great equalizer that levels the playing field or said another way offers trust on a whole other level that no other financial instrument can offer. This is how great economies become stronger and more prosperous while at the same time lifting the citizens within these nations to heights that can not be attained through other means. Gold is a game changer. For this reason these two nations, Russia and China, have been moving closer together for the past decade as the bond of trust is becoming stronger and stronger because it appears they are moving closer to using gold as a settlement mechanism. While this pure speculation on my part, I do have eyes to see and ears to hear. These two nations have been moving in tandem for some time and developing projects separately that somehow keep meeting in the middle. Probably not accident.
The current world trade situation remains tense with the shadow of a “currency war” hanging over it. Central banks worldwide have increased their holdings of gold to evade risks. However, it is not gold, but trust and cooperation among countries that the world lacks. For China and Russia, improving mutual trust and deepening cooperation is more important than buying gold.
In September, China and Russia emphasized promoting cooperation of gold market participants between the two countries while Chinese Premier Li Keqiang paid an official visit to Moscow.
Deepening mutual trust and cooperation between Russia and China can be seen as investing in each other. The China-Russia comprehensive strategic partnership of coordination for a new era is becoming a model of new-type relations between major countries, which is even more stable and valuable than gold. Source
Most people don’t have “official meetings” to discuss their gold game or their grandchildren. Most people that conduct “official meetings” are discussing actual issues that progress ideas, situations or concerns. My guess is this is what happened in Moscow in September. Let’s not forget both countries have been, officially, discussing a national cryptocurrency and both nations have massive gold holdings.
