World governments are currently increasing their gold reserves in order to hedge against inflation. Russia has had one of the largest net increases in gold reserves worldwide, reserving and buying much more gold than it ever did before.
At the end of July 2019, Russian gold reserves were reported at 2208 tonnes. The Russian Central Bank confirmed in a press release that the total value of this gold (according to the current value of the USD) is around $100.3 billion.
According to the World Gold Council’s official report, Russia bought around 275 tonnes of gold in 2018 alone, which was recorded as the highest amount of gold bought in any given year by any country.
In 2019 Russia has already purchased over 96.4-tonnes of gold by buying 31 tonnes in February, 18 tonnes in March, 16 tonnes in April and 6 tonnes in May, 18 tonnes in June.
These monthly and yearly buying trends show that Russia is now making some practical efforts to increase its gold reserves. This buying is an attempt by the Russian government to offer further stability to its economy and its currency. Let’s take a look at why Russia might be buying so much gold.
De-Dollarizing The Economy
It has been reported that Moscow has plans to decrease the effect of the USD on its economy. They are making some big moves to decrease their share in the US debt. Russia, which once used to be the biggest holder of US debt, has decreased its USD shares from a high of $96.9 billion to $13.2 in 2018, and to $12 billion since the start of 2019. That is a stunning 85% decrease in its US debt holding, which certainly indicates changing trends in Russia's strategy towards the USD.
This move by Russia to de-dollarize its economy, and to strengthen its economy by backing its national currency with huge reserves of gold can and will help Russia. While the effects of this move are still not evident, they are likely to hit the USD hard in the future.
On the other hand, de-dollarizing their economy and starting to depend on their own national currency can benefit Russia in other ways. It can help them increase the value of their currency, increase the Rouble’s stability, attract more investors and hedge against future inflation. Gold is one of the best investments any country can make - this rare and expensive metal can strengthen the economy of any country that holds it for a long enough time.
Putin's Aggressive Approach
During a recent speech at SPIEF, Putin mentioned that America is abusing its power to get undue benefits by the increasing power of the USD. Putin further mentioned that the United States is using the Dollar to put pressure on other nations of the world, and he also warned that it might backfire. The Russian leader also suggested that the power and global effect of USD should be reconsidered.
Russia is following other big nations of the world in making themselves less dependent on the Dollar, and appreciating their own national currency for bilateral trade and investment. This trend of leaving the Dollar market has been increasing in recent years, and other countries have been following Russia’s lead. Countries worldwide are now using the USD for mutual trade 20% lesser than before, and the numbers continue to increase.
Russia seems to have changed its plans about its USD holdings - the country is now buying more gold than ever to increase its gold reserves while at the same time getting rid of its USD holdings. Russia has already brought down its USD holdings by 85%, and it continues to diminish.
This move suggests that Russia may be looking to hurt the USD by selling its USD reserves, or looking to stabilize its own national currency instead of holding USD.