Russians have gone on a gold-buying spree.
According to Russian media reports, investors in the country have bought a record amount of gold since 2014 despite prohibitively high taxes.
While the Federal Reserve continues to downplay inflation in the US, insisting that it is “transitory,” the Bank of Russia has gone to war with rising prices. Bank of Russia Governor Elvira Nabiullina says she sees “persistent factors” to inflation, and on Friday, the Russian Central bank hiked interest rates by 100 basis points to 6.5%.
In a statement, the Bank of Russia said, “The contribution of persistent factors to inflation increased due to faster growth of demand compared to output expansion capacity.”
Last week, Russia announced plans to completely eliminate dollars and dollar-denominated assets from its sovereign wealth fund. Is this another sign of erosion of dollar dominance?
The news from Russia dovetails with a warning by billionaire fund manager Stanley Druckenmiller that the dollar could cease to be the world’s reserve currency within the next 15 years.
Last week, we reported that the Russian National Wealth fund was dumping dollars and turning toward gold. The Russians have engaged in an intentional de-dollarization policy for several years. But it appears this could be part of a broader global move away from the greenback.
The dollar’s share of global currency reserves dropped significantly in the fourth quarter of 2020, falling to its lowest level in 25 years according to recently released IMF data. Globally, the dollar now makes up just 54% of global currency reserves. The last time the greenback’s share was this low was in 1995.
The Russian Finance Ministry has given the green light for the Russian National Wealth fund to diversify and invest in gold and other precious metals. According to a report by RT, this is part of a broader move to de-dollarize the wealth fund.
For the first time ever, Russia holds more gold than US dollars.
According to a Central Bank of Russia report published this week and analyzed by Bloomberg, gold made up 23% of the Central Bank of Russia’s reserves as of the end of June. The bank’s share of dollar assets dropped to 22%. In 2018, more than 40% of Russian reserves were in dollars.
Russia’s second-largest bank is betting on gold to boost profits in the midst of the COVID-19 pandemic and global economic slowdown.
According to a Bloomberg report, VTB Bank has prioritized gold trading in addition to lending to gold mining companies.
China has accumulated more than 100 tons of gold since it resumed buying the yellow metal last December in a quest to diversify its reserves away from the US dollar.
The People’s Bank of China added another 5.9 tons of gold to its hoard in September, according to data on its website reported by Bloomberg. It was the 10th straight month of gold-buying for the Chinese central bank and it added to the 99.8 tons accumulated during the prior nine months.
We’ve written extensively about a push toward de-dollarization by countries like Russia and China and their desire to undermine the ability of the US to weaponize the dollar as a foreign policy tool. The global gold rush on the part of central banks is part of this movement.
And it’s not just countries like Russia and China. As fund manager Ronald-Peter Stöferle wrote in an article for the Mises Wire, Europe as also joined the de-dollarization party.
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.
