Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Is Russia Selling its Gold?

Commodities / Gold and Silver 2011 Jul 11, 2011 - 12:58 AM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleIn the media on Thursday of last week, an article appeared in the States stating that "Russia is selling its gold". This may have alarmed those in the gold world, until they looked carefully at the words. The article gave the impression that the central bank of Russia was selling gold. But what was the real story? Is Russia selling its gold from its foreign exchange reserves? If so, it is flying in the face of its government and the policy of its central bank.


Who is the Russia that is selling gold?

Gold-producing companies sell their gold after the gold has been refined at reputable refineries in their country. The government receives a report of the amount sold and a report of the amount of dollars or currency for which it was sold and ensures that the foreign currency returns to the country. This is a perfectly normal way for exporters to export any product. Mining companies all over the world follow the same procedure. Would it be correct therefore to say that the country is selling its gold? Certainly this is not what the gold market understands by "Russia is selling its gold". No, this is local Russian, gold mining companies exporting the gold they produced.

Hence, this cannot be defined as the country selling its gold, in the way the market understands it. If it were, then South Africa is selling its gold, so is Peru, Mexico and most other nations that host gold mines.

How a Country Buys and Sells its Gold

First we have to understand that when a 'country' buys or sells its gold it refers to the country's central bank buying or selling gold for the nation's reserves. Where this happens, gold is often bought from local producers. The central bank will simply agree with the local miner to pay him local currency for his gold at market-related prices. In all cases where miners export their gold, they are paid in local currency, once the proceeds of the sale of the gold are repatriated. But in the case of buying local production, no foreign exchange is involved, but the central bank pays the miners from its own resources.

Purchases of Gold by Russia over the Last Year

In some cases the central bank of the nation buys only a small amount direct from local miners. In other cases the central bank may buy the entire local production and in the most extreme of cases the central bank may buy the entire local production plus purchase from the physical market in London, usually at the Fixes. The ultimate way to buy gold is to buy all local production, buy more through London and then to encourage one's own citizens to buy gold from importers, such as China. In time of stress, the government will be able to take its own reserves and its citizen's gold from them.

Gold C.B.
Purchases
Comments May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Total
Russia Mainly purchases of gold in the domestic market & other changes 22.5 6.7 16.2 9.3 20.7 19.2 9.0 4.5 0.6 3.1 18.8 13.7 144.3
tonnes

Total Production in 2010 203 tonnes

Is the Russian central bank selling its gold? No, it's continuing to buy gold. When he was President, Mr. Putin instructed that Russia hold 10% of its reserves in gold. Since then the Russian central bank has been buying gold from local production as you can see from the World Gold Council's numbers above. With Russia producing around 203 tonnes a year from its mines, the last year's purchases amounted to 144.3 tonnes. Does the fact that it doesn't buy its entire locally produced gold mean it is selling its 'official' gold? The implication is that it is selling 'officially' owned gold, not its local mines' gold. The World Gold Council numbers state that local production is being purchased, but not completely.

What could be a possibility is that it is buying its gold from only a select number of local mines, as the gold becomes available, or it is exporting all its locally produced gold and buying gold for its reserves from the London market. We feel that if they were buying locally produced gold the tonnages purchased each month would show a smoother pattern.

So far the gold content of Russia's reserves is about 7.8% -up from 5.3% in January. The statement from its central bank read,

"The bank of Russia is not committed to buying any particular amount of gold," the bank said. "Nor is there any official target amount of gold purchases. The bank buys gold at a market price, and its buying intentions completely depend on the market conditions."

How's that for inscrutability?

Is the Russian central bank buying in London? That would explain the variety of monthly purchases as market conditions would throw up more on the falls than on the rises. A buying order that set the condition, "show me the offer and then I will decide", would fit in too. Even an eventual target of 10% of reserves would allow the central bank sufficient leeway to say there is no defined amount that they should buy. An earlier statement from the Russian government/central bank sources stated that, "Russia intended to buy at least 100 tonnes a year for its reserves."

Central Bank Discretion

Central banks have and will always be sensitive to declaring the exact state of its gold holdings and gold policies. This allows writers (on central bank gold) huge scope on what conclusions they wish to reach. Even Greece's 111 tonnes of gold is not up for grabs by the creditors of Greece, but there is a deafening silence over Greece's gold, despite its overwhelming debt.

Governments generally cannot interfere with the independence of their central banks. It is the central bank that decides the gold policy of reserves. In Germany, calls for gold sales by politicians were refuted. In France, the head of the French central bank, at first said that selling a nation's gold was like selling the family jewels. But then Sarkozy, France's Finance Minister ordered the Banque de France to do so, which it then did, in part.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2011 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules