This Bear is a Bull as the Russian Central Bank Stockpiles a Gold Hoard

Russia’s Retreat From Counterparty Risk and SWIFT Over Ukraine – Part 2

Originally published on July 24, 2018 by TraderStef at CrushTheStreet

Apparently, Bloomberg Opinion bloggers remain clueless and fail to mention gold as an alternative to U.S. Treasury debt held at the Central Bank of Russia, even though Bloomberg Markets reported on and clarified the topic a month ago.

Moscow Mystery: Where Did All Its Treasuries Go?…  “Just a day after President Donald Trump’s much-maligned meeting in Helsinki with Russian President Vladimir Putin, a monthly report from the Treasury Department showed that Russia is no longer considered a “major foreign holder” of U.S. government securities. That is because in the two months through May 31, the nation’s Treasuries hoard plummeted to just $14.9 billion from $96.1 billion. The threshold to be considered a major holder is $30 billion. There are 33 of them.  Such an aggressive reduction is not normal. To put the $81.2 billion decline into context, the most Japan has ever cut back in a two-month stretch is $47.8 billion. China, the largest foreign owner of Treasuries, has scaled back to a similar extent on occasion, but it was a mere fraction of its total. For Russia, once a top-10 holder, this looks like a full-scale liquidation. Since the start of 2017, no country’s holdings have fallen more, either on an absolute or percentage basis… No one in the world’s biggest bond market is quite sure what to make of this… For now, Russia’s mass exodus from U.S.Treasuries is largely a bond-market curiosity that bears watching” – Bloomberg Opinion, Jul. 2018

Russia Dumps Treasuries for Gold… “Although investors usually seek safety in U.S. debt, Russia cut its holdings of Treasuries nearly in half in April as Washington slapped the harshest sanctions to date on a selection of Russian companies and individuals. In a shift Danske Bank A/S attributed to a deepening “geopolitical standoff,” Russia is instead keeping up its purchases of gold.” – Bloomberg Markets, Jun. 2018

Russia’s gold holdings were on the rise following its financial crisis and debt default in 1998, then rose decisively after the derivatives induced financial crisis of 2008.  As a growing list of sanctions were imposed upon Russia by the world due to their “little green men” invasion of eastern Ukraine, and occupation of the Crimean Peninsula since the spring of 2014, Russia has doubled down on its acquisition of gold ever since.  The invasion of Ukraine was about NATO’s encroachment upon Russia’s borders and not the hegemony of the USD reserve system.

Russia has taken over China’s number five spot on the world stage of total gold reserves…

Official Gold Reserves as of 1Q18 – World Gold Council

Russia’s hoarding of gold should not come as a surprise to anyone, as the world is creeping towards de-dollarization.

Russia buys tons of gold in response to Western sanctions… “Deputy Foreign Minister Sergei Ryabkov said that Russia, in response to new US sanctions, is stepping up efforts to reduce dependence on the US dollar. Some believe that Russia, China and India will completely abjure international payments in dollars and euros. The president of Turkey also urged other nations to give up the US dollar and buy gold and lira instead. Forbes analysts write that the Bretton Woods system of finance, which made the dollar the world’s largest currency since 1944, may collapse.” – Pravda, Aug. 2017

Russia entrusts its gold to no one, has zero bullion in US… “We do not have a gold reserve in the US, we have only Forex (foreign exchange) reserves abroad. No one can lay hands on our gold.” – Anatoly Aksakov – Chairman of the State Duma Committee on Financial Markets, Apr. 2018

Russia gets rid of US Treasury securities and buys gold… “Some people ask whether the Russian Central Bank sold them to support the ruble in April, but it’s about changing allocation as reserves continue to grow.” – Vladimir Miklashevsky– Senior Economist at Danske Bank, Jun. 2018

Russia disposes of US government bonds to buy more gold… “Russia has left the list of 33 largest holders of US government bonds, after the country disposed of at least a third of remaining bonds… Elvira Nabiullina, the head of the Central Bank of the Russian Federation, said commenting on Russia’s decision to do away with US securities, that Russia’s share of gold had had a tenfold increase in over ten years. “We are diversifying the entire structure of currencies … We are pursuing a policy so that they are safely stored and diversified, and we assess all the risks: financial, economic and geopolitical ones”… Natalia Orlova, chief economist at Alfa Bank, said that the Bank of Russia could reduce investment in US treasury securities, because the further dynamics of the US dollar in the conditions of trade wars was causing concerns. Meanwhile, Russia continues to rid of US debt securities and replenish gold reserves. In May, the Russian Central Bank purchased 600,000 ounces of gold. Russia is not the only country to conduct such operations: India, Turkey, Mexico, Iran, Kyrgyzstan, Kazakhstan, Belarus, Uzbekistan, Tajikistan, Mongolia and China started purchasing gold more actively… Russia has been buying up gold on the basis of two factors. First off, the Russian Central Bank protects itself against the possible seizure of foreign currency reserves abroad. Sanctions become tougher, and everything may eventually develop on the basis of the Iranian scenario, when Teheran’s reserves invested in treasury bonds were arrested. When you buy gold, you keep it on Neglinnaya Street, and you do not have any headache about it. Secondly, Russia buys gold as a measure to support the gold mining industry.” – Pravda, Jul. 2018

Despite the financial collapse of Russia in 1998, and sanctions imposed after the invasion of Ukraine, Russia holds the bragging rights of a minuscule Debt to GDP Ratio of only 12.6%.  By comparing how much debt a country has with what it produces, indicates its ability to pay back debt.  When a country can pay the interest on its debt without having to refinance or harm its economic growth, it is considered stable and a low credit risk. What does that say about the folks who are imposing sanctions and not buying gold?  The joke is on those who are not in the gold and silver buyer’s bullpen.

An exclusive tour of Russia’s gold reserve – Komsomolskaya Pravda, Mar. 2018

The ruble is the most gold-backed currency in the world; Sanctions don’t bother us” – Putin, May 2016

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