Russia set to continue gold grab
Moscow (Nov 2) According to data from the GFMS gold survey covering the third quarter, there are a number of factors driving the gold price.
Retail investment in top gold consuming countries India, China and Germany saw buying increase 30%, 26% and 19% respectively from a year earlier.
These three markets alone accounted for an extra 26t of retail buying in the third quarter.
This was balanced by slightly weaker jewellery demand, the largest consuming sector according to the survey, which was marginally lower.
Meanwhile, supply was also slightly higher, and remained at a 51 ton surplus.
But, physical demand was on the up by more than 7% year-on-year in the third quarter.
Central bank purchases were up 13% to 132 tons with Russia expected to be the biggest buyer this year.
The country has remained undeterred by a weakening gold price, continuing to steadily increase its gold reserves.
Since 2008, the country has bought an average of 0.3mln ounces per month, around 3.5mln oz per a year.
There are potentially two reasons behind the steady increase in buying.
Firstly, as a major commodity producer and exporter, Russia would prefer rising and/or stable prices, but the bull run came to “an abrupt end” when the financial crisis hit.
Over the last few years the gold price has performed better than oil, potentially prompting the government to up its gold reserves.
As well as this, the Russian rouble has been on a downward trend versus the US dollar since 2008, made worse by the drop in oil prices earlier this year.
The drop in the rouble’s value sent Russia into a financial crisis, while sanctions imposed by the US and the Eurozone has meant Russia’s FX reserves have been depleted, the broker said.
Since Russia is a gold producer, a way to build international reserves is via buying domestically mined gold.
This way this gold will not enter the international market, in a way reducing its dependency on the US dollar for international reserve building.
Source: ProactiveInvestor.au
