It is generally well known that central banks have been net buyers of gold for a couple years now, but rarely do central banks disclose a change in their reserves.
Posted by Adam King on November 25, 2011
Russia Makes a Major Move in the Gold Market
November 25, 2011 – As commodity prices continue a relative suppression due to the strength of the US dollar, a signal of a floor in the markets, and the pending options expiration, news breaks today that Russia has been buying gold. A lot of gold. It is generally well known that central banks have been net buyers of gold for a couple years now, but rarely do central banks disclose a change in their reserves.
Russia has taken a different tack. Beginning in 2005, Vladimir Putin very publicly endorsed a decision by the Russian Central Bank to diversify their reserves out of fiat currencies and debt instruments into gold bullion. Don’t you wish the United States made a similar decision? At that time, the tactic was seen as a political as well as economic, but in hindsight it was just plain smart. Putin’s decision to be photographed repeatedly with gold bullion in suggestive poses and publish these photographs in Russian media was a political move. Putin is extraordinarily popular in his home country, partially for his economic policy of checkmating the status quo.
It’s also generally true that if you run your country’s finances well, your people will like you. The United States is a pretty good case in point. But we can learn from the moves the Russian Central Bank has most recently made. There is actually relatively little gold in the world. Above ground gold could fit, piled a few feet high, on a football field. Central banks own a staggering amount of this gold comparatively and their moves in the market signal where prices will go, based both on their projections and their activities.
The Russian Central Bank bought 19.5 tons of Gold in October, bringing their reserves to 871.1 tons. Comparatively, US reserves are estimated and contested at about 8,134 tons. China is looking to catch up to the United States and needs about 2,500 tons to do so. Only seven countries in the world possess more than 1,000 tons of gold. Russia is not one of them.
The sky is therefore the limit when it comes to the Russian Central Bank buying gold. They have the equity. They have the political power and support. And they have the room to grow. The gold market will certainly react to this power position with even higher stronger support levels for gold. Central banks will continue to hedge against fiat currency and abstract debt instruments. The gold market will benefit from this.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
Categories:
US Gold Market
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