Over the past five years, Russia has spent more than $ 40 billion to build gold reserves. Now it is going to quit.
The Russian central bank announced on Monday (March 30) that it would stop buying gold from April 1, but did not explain the reason behind this move. Analysts say Russia already has large gold reserves and may not need more.
"Further decisions on buying gold will depend on the situation," the central bank said.
In addition, with gold prices approaching a seven-year high and international investors demanding hedging, Russian traders may be eager to sell gold. In recent weeks, as coronavirus has sown panic seeds in financial markets, gold has become a very popular investment, but some traders have difficulty finding gold bars.
Dmitry Dolgin, chief economist at ING bank in Russia, said, "The Russian central bank is now sending a signal to gold sellers to turn their supplies to the outside world. Global demand seems high."
The global panic of the coronavirus outbreak and the massive stimulus measures introduced by central banks have stimulated demand for gold. Although there are thousands of tons of gold bars in vaults around the world, it is difficult to find the metal you need anytime, anywhere. Gold is usually transported by ordinary commercial flights, which are being cancelled by thousands.
The gold market is facing an unprecedented test
During the US market Monday, the price of gold was trading near $ 1620 per ounce.
More gold from Russia could ease market tensions. Eduard Rybkin, deputy head of the precious metals division of Lanta Bank in Moscow, said that suppliers may reach key buyers through charter flights.
He said there was demand from traditional buyers such as London, as well as from India, Turkey and Singapore.
Russia's continuous gold purchases in recent years have been a key pillar supporting the market. This has provided support for gold prices as investors abandon safe-haven assets and buy assets with higher risks and higher returns. The Russian central bank's gold reserves are worth about $ 120 billion.
Gold accounts for about 20% of Russia's international reserves, which is a very high level both historically and from the perspective of other central banks.
The Russian central bank has largely dominated the gold market, and it has continued to increase its gold reserves every month for the past three years.
According to the World Gold Council, the Russian central bank bought 158.1 tonnes of gold last year. Data from the World Gold Council show that the Russian central bank bought 8.1 tonnes of gold in January.
"The central bank may not want to increase the share of gold in reserves, and the size of the reserves is declining," said Tatiana Evdokimova, an analyst at Nordea Bank.
High market volatility has not only challenged the gold market, but the oil price war between Russia and Saudi Arabia has also caused trouble for the country's economy. WTI crude oil prices fell below $ 20 per barrel on Monday, hitting a 17-year low.
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