Between July-September 2014 central banks added 92.8 tonnes of gold to their reserves - and 59% of net purchases in this period were made by Russia

When the going gets tough countries buy gold. Over the past decade, Russia’s central bank has been the most active gold buyer in the sector.

Between July-September 2014 central banks added 92.8 tonnes of gold to their reserves - and 59% of net purchases in this period were made by Russia. Russia was followed by Kazakhstan, which added 28 tonnes to its reserves, and Azerbaijan bought a further seven tonnes. Both Kazakhstan and Azerbaijan are members of the Commonwealth of Independent States.

Russia has overtaken China in the amount of gold held by its central bank.

Gold now makes up 10.6% of Russia’s total reserves, up from just under 8.4% a year ago. Russia has added about 115 tonnes of gold to its reserves this year to date - roughly a 50% increase on both the previous two years’ purchases.

Why is this?

In general terms, central banks have been net buyers of gold since 2010 - a while before the conflict in Ukraine. In Russia’s specific case though, sanctions seem to have driven the recent acceleration in its buying spree. According to Reuters’ analysis, sanctions have forced Russia’s central bank to shore up domestic mine production. This is because sanctions have made it difficult for local mines to sell abroad. Typically, domestic banks would have bought the metal to then sell it on to foreign banks. Now, because of sanctions, Russia’s central bank has had to step in, buying most of the gold commercial banks had available.

Secondly, Russia is seeking to diversify from currencies that it views as under American control - a plan outlined by President Putin’s economic adviser Sergei Glazyev back in May. A further reason for Russia seeking to hedge its reserves is probably linked to the falling price of oil. Russia needs an oil price of about $105 a barrel to balance its budget - and the price of oil is now hovering around $80, a four-year low - according to Putin himself, Russia is preparing for a “catastrophic” oil slump.

Is Russia’s strategy working?

Glazyev’s prediction that the price of gold would have significantly increased due to geopolitical tensions hasn’t really panned out so far.

The price of the metal has had a pretty wild ride since 2008.

On November 30, Switzerland will hold a popular vote calling for the Swiss National Bank (SNB) to permanently retain at least 20% of its assets in gold, and to store all its gold at home. About 7% of Swiss reserves are currently held in gold - a near tripling of the current reserves would make Switzerland’s holdings bigger than those of every country in the world except the US and Germany. Both the SNB and the Swiss government have voiced their opposition to the proposal - but polls show that the vote will be close.



From Putin’s point of view, probably worth a punt.