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Russia Keeps Right on Buying Gold

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Russia continues to buy gold as it seeks to minimize exposure to the US dollar.

According to information released by the Central Bank of Russia last week, it purchased another 31.1 tons of gold in February, bringing its total reserves to 2,149 tons.

Incrementum AG fund manager Ronald-Peter Stoeferle said central bank gold-buying is a trend that continues to gain momentum as the US debt burden continues to grow.

Russia’s demand for gold is part of the whole de-dollarization story that continues to get stronger and stronger.”

Jim Rickards tweeted about the most recent gold purchase by the Russians, saying “Washington is finally noticing.”

Russia has been endeavoring to reduce its exposure to the dollar over the last several years by buying gold and selling off US Treasurys. Russian gold reserves increased 274.3 tons in 2018, marking the fourth consecutive year of plus-200 ton growth. In February 2018, Russia passed China to become the world’s fifth-largest gold-holding country.

Russia has also been divesting itself of US debt. In the spring of 2018, the Russians sold off nearly all of its US Treasury holdings. According to Bank of America analysts,  the amount of US dollars in Russian reserves fell from 46% to 22% in 2018.

Meanwhile, China added to its official gold reserves for the third straight month in February. Many speculate the Chinese might secretly stockpiling additional yellow metal as well.

Other central banks have also been adding to their gold holdings. In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record. Russia was the leading purchaser of the yellow metal in 2018. Central banks in Turkey and Kazakhstan were also big buyers. We even saw increases in gold reserves from two EU banks – Hungary and Poland.

According to CCN, Russia is buying because “gold is traditionally used to hedge against economic uncertainty. As sanctions fall into place and the screws tighten on other nations, the US dollar loses power within the world economy.”

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.

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