Russian Central Bank $1 billion gold purchase confirmed

The internal transfer of 30 tonnes of gold from an arm of Russia's Finance Ministry to the country's Central Bank has now been confirmed by Finance Ministry sources.

Author: Lawrence Williams
Posted: Tuesday , 22 Dec 2009

LONDON -

The report on Mineweb of 10 days ago that the Russian Central Bank was buying 30 tonnes of gold, worth around $1 billion at current gold prices, for its reserves (see Russian Central Bank to buy 30 tonnes of gold from Gokhran) has now been confirmed as having taken place by an official from Russia's Finance Ministry. This effective transfer of gold from one government entity to another is yet another example of how countries can handle gold holdings so that they do not necessarily show up in official Central Bank figures. Whether, in this case, this is intentional government fudging of the figures to mislead the markets is uncertain - the amounts are perhaps too small - but it will be remembered that China effectively did the same thing earlier in the year when it announced that it had transferred some 454 tonnes of gold over the past few years, which it already held in one government account, to its Central Bank, the news of which gave a strong stimulus to the gold price at the time.

There are several major gold producing countries, like China and Russia, where gold output is bought by the state rather than sold on the open market so there is definitely the likelihood that total gold holdings by state entities are actually in excess of those reported by the countries' Central Banks themselves, which does add another element into the gold price supply/demand equation.

In the Russian case, it has been an element of one government entity apparently bailing out another with a transfer of funds, for the gold, by the Central Bank, to the Finance Ministry to help the latter reduce the country's deficit which is put at around 7.3% of GDP in 2009 as Russia tries to weather the financial crisis which has hit it badly - although perhaps not as badly as some Western nations. Initially reports suggested this gold could come onto the open market, but the Central Bank, and the Russian Prime Minister Vladimir Putin, have expressed and intention to raise gold holdings to diversify its reserves to protect it against devaluation of other currencies held in the reserves - notably the US dollar.

The net result of the transfer is, of course, that there is in reality no change in the amount of gold held by the Russian state, although total Russian gold reserves as of December 1st (held by the Central Bank and Gokhran, the Russian state stockpile entity which falls under the Finance Ministry) were stated as having risen to 612.74 tonnes by the Central Bank - a rise of just over 20% this year. With Russian gold output on the increase, the amount of gold finding its way into total reserves is likely to rise further unless Gokhran decides to sell some of this on the open market to raise more funds for the Finance Ministry.