As U.S. intelligence agencies scrambled in February for reliable information on the crisis in Ukraine, Russia was quietly increasing its gold holdings by 7.24 tonnes (or metric "tons") to 1,042 tonnes, according to data released this week by the International Monetary Fund.
The top gold mining countries. (Image source: GFMS/Thomson Reuters)
Considering that Russia currently holds approximately $400 billion in foreign exchange reserves, most of it in U.S. dollars, recent developments in the country's gold holdings could be important.
If Russia were to diversify just 5 percent – $20 billion – of its reserves into gold, it would equal roughly 500 tonnes of gold “or nearly 25 percent of global annual production,” the precious metals website GoldCore reported.
Known as a “safe haven” investment, Russia’s latest move on gold could signal that the county is anticipating a long-term standoff with the United States.
U.S. sanctions announced last week against Russia could lead to higher material demand from Russia’s central bank, Bank Rossii, GoldCore reported, adding that the demand could strain "the already fragile supply demand dynamics of the physical gold market."
A change in the demand dynamics could lead to a default on the COMEX gold exchange, the primary market used for trading precious metals, which would then lead to an increase in the cost of physical gold.
A default would also make it more difficult to secure gold in allocated gold accounts or for delivery, GoldCore added.
Gold from mine production. (Image source: GFMS/Thomson Reuters)
Analysts have reported the February increases in Russia's bullion reserves with caution, noting that March's data may give investors a better idea of Bank Rossii's next move.
(H/T: Zero Hedge)
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This post has been updated.
