Will Putin's next Step Be to Sell Gold?

Past record says absolutely not

Thu, Dec 18, 2014
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Seems to like it

This article originally appeared at Zero Hedge


"Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves, if it happens it will push gold lower."

That is what, according to some people Bloomberg has quoted, is in the cards.

As Bloomberg reports,

Russia’s surprise interest-rate increase failed to stop the plummeting ruble. Another tool available to repair economic havoc caused by sanctions and falling oil prices: selling gold.

Russia holds about 1,169.5 metric tons of the precious metal, the central bank said last month. That’s about 10 percent of its foreign reserves, according to the London-based World Gold Council. The country added 150 tons this year through Nov. 18, central bank Governor Elvira Nabiullina told lawmakers. The Bank of Russia declined to comment on its gold reserves.

Russia’s cash pile has dropped to a five-year low as its central bank spent more than $80 billion trying to slow the ruble’s retreat.

The currency’s collapse combined with more than a 40 percent tumble in oil prices this year is robbing Russia of the hard currency it needs in the face of sanctions imposed after President Vladimir Putin’s annexation of Crimea.

A fall in gold prices signals that traders are betting that the country will tap its reserves, according to Kevin Mahn, who oversees $150 million at Parsippany, New Jersey-based Hennion & Walsh Asset Management.

“Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves,” Mahn said. “If it happens it will push gold lower.”

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But others are less convinced.

“There are a number of ways that they could use their gold,” Robin Bhar, an analyst at Societe Generale SA in London, said today by phone.

“They could use it as collateral for bank loans, or for loans from multi-lateral agencies. They could sell it directly in the market if they want to raise foreign-exchange” reserves, including to get more dollars, he said.

If Russia decides to sell, the figures to confirm the move wouldn’t be available for a few months, Bhar said.

Selling gold is usually “one of the last weapons” for central banks because some use the metal to help back their currencies, George Gero, a precious-metal strategist at RBC Capital Markets in New York, said in a telephone interview. “They are probably still accumulating gold and keeping it for a bigger crisis,” he said.

While some suggest the accumulation was "tradition" it is still nonetheless an impressive aggregation of the barbarous relic:

20141217_putin_0.jpg

Stockpiling gold

 

So given the efforts to build this gold-backing for their nation's currency, do we really expect Putin to now dump his physical: or perhaps more strategically suggest a true gold-backed currency and jawbone the currency that way?

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