Russia’s Gold Bet Paying Off; Reserves Top $100 Billion

As Bloomberg put it, Russia’s bet on gold looks better every month.

The Russian Central Bank’s gold reserves have topped $100 billion thanks to continued buying and surging prices.

Russia added another 12.2 tons of gold to its hoard in July. That pushed its purchases on the year to just over 106 tons. Russia’s gold stash now totals around 2,200 tons and accounts for 20.7% of its total reserves. The country has the fifth-largest gold-holdings in the world.

The Russians have been buying gold for the last several years in an effort to diversify away from the US dollar.  Russian gold reserves increased 274.3 tons in 2018, marking the fourth consecutive year of plus-200 ton growth. Meanwhile, 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.

Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, told Bloomberg, “There is a massive substitution of US dollar assets by gold — a strategy which has earned billions of dollars for the Bank of Russia just within several months.”

But as the Bloomberg report noted, Russia’s gold-buying spree isn’t so much about benefiting from the rising price. It’s about diversification. One analyst told Bloomberg, “The central bank is unlikely to have pursued the goal of earning in the process of managing gold reserves.”

And more specifically, it’s about minimizing the United States’ ability to use a weaponized dollar against the Russian government. As Peter Schiff pointed out during an interview on RT last spring, other countries around the world have grown weary of the US using the dollar as a billy club.

Other countries don’t like this, and to the extent that they can move away from the dollar, well then they kill two birds with one stone. And one way of doing that is to increase their gold reserves now while gold is still cheap. Because when the dollar really starts to tank, the price of gold is going to soar. Russia, right now, obviously wants to buy as much gold as it can while the price is still relatively cheap. That allows it to build up a bigger hoard of gold to replace the diminished value that the dollar is going to play as a reserve currency.”

The Russians, along with the Chinese, have made other moves in an attempt to diminish US dollar hegemony. There has been talk in Russia of creating a gold-backed cryptocurrency along with the creation of an alternative to the dollar-based SWIFT payment system. These moves could also set the stage to topple the dollar as the world’s reserve currency.

Simply put, Russia and China are tired of the US using the dollar as a foreign policy billy club and they are looking for ways to push back.

We’ve even seen US allies looking for alternatives to the dollar system. Last year, the EU announced plans to develop a special payment channel to circumvent US economic sanctions and facilitate trade with Iran. In June, it was reportedly nearly ready to begin operation.

Peter has said eventually the dollar will fall from its perch as the reserve currency.

Ultimately, the US won’t have any leverage at all … This [the dollar as the reserve currency] was an exorbitant privilege that the US has enjoyed for decades, but it has abused that privilege dramatically, even more so recently with the sanctions. So, I think that privilege is going to be lost and with it will go the artificially high standard of living that came along with it in the United States.”

This is exactly why countries like Russia and China are buying gold.

The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up.”