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Russia Continues to Add Gold to Its Reserves; Seeks to Minimize Dollar Exposure

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Russia added another 36.6 tons of gold to its reserves in November, according to the latest data released by the World Gold Council.

This follows on the heels of a 29.9-ton increase to its hoard in October and a 37.8-ton increase in September.

Russia has been rapidly accumulating gold over the last several years.  Russian gold reserves increased 224 tons in 2017, marking the third consecutive year of plus-200 ton growth. In February 2018, 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.)

Countries like Russia and China have been taking steps to minimize their exposure to the dollar – specifically buying gold. And they’re not alone. On net, central banks purchased 148.4 tons of the yellow metal in Q3. That was 22% higher year-on-year and the highest level of quarterly demand since Q4 2014.

Russia and China have also been selling off US debt. Last spring, the Russians sold off nearly all of its US Treasury holdings.

There have also been efforts to limit exposure to the US dollar by setting up alternative payments systems and financial channels that don’t rely on the greenback. The Russians have developed an alternative payment system that has reportedly surpassed SWIFT in popularity within the country. According to the Central Bank of Russia, 416 Russian companies and government organizations had joined the System for Transfer of Financial Messages (SPFS) as of September.

And it’s not just countries that have traditionally rocky relations with the US looking for alternatives. In September 2018, the EU announced plans to develop a special payment channel to circumvent US economic sanctions and facilitate trade with Iran.

Other countries have also been buying gold. According to the World Gold Council, Kazakhstan added another 4.3 tons of gold to its reserves in November. Mongolia has expanded its gold holding by over 10 tons since June. We’ve even seen increases in gold reserves from two EU banks – Hungary and Poland.

Globally, central bank net purchases were over 450 tons by the end of November, well in excess of the same period in 2017.

Net purchases continue to be driven by emerging market banks, with diversification, and “de-dollarisation” underpinning demand. The National Bank of Hungary also cited gold’s role as a hedge against future structural changes in the international financial system when it announced its ten-fold increase in gold reserves in October. Net sales remain virtually non-existent.”

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