Saturday, 04 July 2020 | 03:26 WIB

Why Has Russia‘s Gold Reserve Surged Over the Last Decade?

Why Has Russia's Gold Reserve Surged Over the Last Decade? (illustration: marketwatch)

MOSCOW, NETRALNEWS.COM -- Vladimir Putin's efforts to break Russia's dependence on the US dollar has triggered a gold rush.

Within a decade, the Russian state has doubled its gold bullion reserves, and 2018 marks the most ambitious year. Data from the central bank shows that gold ownership rose by 1 million ounces in February, the most since November 2018.

Data shows that Russia made rapid progress in its efforts to diversify from American assets. Analysts, who have coined the term de-dollarization, speculate about the impact of the global economy if more countries adopt the same philosophy and what it means for the desires of the dollar compared to other assets, such as gold or Chinese yuan.

Luxembourg Times reported that French President Emmanuel Macron said in an interview with CNN in November 2018 that European companies and entities were too dependent on the US currency, calling it a "sovereignty problem." Last year, Poland and Hungary surprised analysts by making the first substantial gold purchases by EU countries in more than a decade.

For Russia, experts began to question whether they were able to maintain the intense pace of purchase. Some say the country will import more gold just in case of geopolitical shocks and the threat of tougher US sanctions because relations between the two have worsened.

The purchase of gold last year exceeded mine supply for the first time. However, others argue that the demand for Russian gold bars will slow down.

"If it reaches the limit for domestic purchases, I think the central bank will start importing gold," said Oleg Kouzmin, chief economist at Renaissance Capital in Moscow and former adviser in the central bank's Monetary Policy Department.

"Given the geopolitical risks, it is likely the central bank will continue to increase the portion of gold reserves," he said.

One thing that can keep US dollar reserves in Russia at a high level is the country's dependence on commodity exports, such as oil which is denominated in the greenback. Three quarters of the country's $ 600 billion in annual trade is in US dollars.

"Central bank purchases have helped" strengthen gold from weak hands into strong hands "and support gold prices in recent years," said Ronald-Peter Stoeferle, managing partner at Liechtenstein-based Incrementum asset manager.

"If not for the Russian central bank, last year would be the worst year for gold purchases in a decade, so it helped lay the groundwork for prices," said Adrian Ash, head of research at gold brokerage BullionVault.

"However, Russian purchases are now well known so that they will need a significant increase in their purchases to materially impact the price of gold."

Meanwhile, representatives for the Russian central bank refused to comment on the increase in gold purchases.