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Russia Buys Even More Gold in July in Its Quest to Limit Dependence on the Dollar

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Russia has added to its gold reserves every month since March 2015. That trend didn’t end in July. In fact, the Russians ramped up their gold purchases even more last month in the face of US economic sanctions.

The Russian central bank added 26.1 tons of gold to its hoard in July, according to International Monetary Fund data reported by Bloomberg. It was the largest increase in Russian gold holdings since last November. 

According to Russian central bank, the country’s gold reserves were valued at $77.4 billion at the end of July.

The Russians have been buying gold in an effort to diversify their foreign currency holdings and minimize their dependence on the US dollar. According to the World Gold Council, Russian gold reserves increased 224 tons in 2017, marking the third consecutive year of plus-200 ton growth. In February, Russia passed China to become the world’s fifth-largest gold-holding country. (China has not officially added to its reserves  since 2016, but many speculate the Chinese might secretly stockpiling the yellow metal as well.)

As Bloomberg noted, Russian Pres. Vladimir Putin warned shortly after his inauguration for a fourth term as president that he wants to “break” from the dollar and diversify reserves to bolster “economic sovereignty.”

Meanwhile, the Russians have reduced their holdings of US bills, notes and bonds by about four-fifths.  Russia dumped nearly half of its US debt in April. In just that one month, the Russians sold off $47.4 billion of its $96.1 billion in US Treasuries. Gold is “a 100 percent guarantee from legal and political risks,” Central Bank of Russia First Deputy Governor Dmitry Tulin said at the time.

Gold seems to have lost favor as a safe haven over the last several months as investors pour into the US dollar.  But the Russians are in a better position to see the inherent risk of depending on the greenback. Dependence on any fiat currency ultimately means dependence on that country’s government. Given the political dynamics, Russia can’t afford to be tethered to the US, so it has turned to the ultimate safe-haven – gold. Financial expert Jim Rickards told Bloomberg that Putin’s gold-buying spree is a “smart move.”

Russia is in a financial war. They’re getting out of US dollars and getting into gold. This insulates them from US dollar freezes and sanctions.”

John Meyer, a partner at SP Angel in London, told Bloomberg the US has turned the dollar into a weapon.

The Americans are weaponizing the US dollar, and it’s absolutely right for Russia to want to diversify its foreign currency holdings. Gold is the ultimate liquid investment if you don’t want exposure to the dollar.”

Earlier this year, Rickards described a number of countries using gold as an offensive counterweight to the dollar as an emerging “axis of gold.” These countries include Russia, China, Turkey and Iran. This axis could ultimately undermine dollar dominance. At the least, stockpiling gold makes these countries less vulnerable to US sanctions and economic pressures.

Holding gold can also make individuals less dependent on the US government and the mechanizations of the Federal Reserve. That seems like a wise move given that the US government has spent itself into a $21 trillion-plus hole.

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