"It seems that Russia’s central bank still remembers and cringes from lessons learned along the tortuous financial road to recovery it has traveled."
"Others seem to have forgotten their own similar histories, or simply are prepared to QE to infinity."
Russia’s Central Bank Deputy Governor Mr. Shvetsov decided that the day after Thanksgiving might be a nice day to announce the continuing long-term policy of consistently growing the gold share in the national reserves.
As far as the Russian Central Bank is concerned, no wishy-washing, no Bretton-Woodsing the issue: Gold is currency, period.
Between January and this November, the value of the Gold Reserves of the Central Bank of Russia grew by $13.5 Billion to $73.7 Billion. The steady accumulation of Gold by the Russian Central Bank has been clearly labeled as supporting National Security, and therefore the interests of its citizens and ultimately the wealth of the nation.
Russia exports about 10 million barrels of oil daily; it correlates that as oil rises or remains somewhat stable at the $50+ levels the more Central Bank Gold buying will occur. In addition, the Bank will start trading Gold on the Moscow Stock Exchange (MOEX) precious metals futures contracts and as needed taking delivery against contracts with exchange warranted Gold.
Shvetsov also said that using precious metals futures as far as the Central Bank is concerned is not to trade market volatility, but as a source of supply, because the purpose of their operations is to replenish and add to gold and foreign currency reserves.
He further commented that as the MOEX is a relatively new exchange among the global Gold trading platforms, it is still developing needed liquidity. In due course, and with the presence of the Central Bank as a major player this should result in attracting such liquidity. In the past the Bank bid for metals through various trading markets and sources worldwide, now it has decided to add the quickly developing infrastructure of the Moscow Exchange to replenish reserves.
Russia now ranks seventh in terms of gold reserves (1,712 tons), behind China, which has 1,842 tons.
The Russians also view the purchase of gold as a strategy against the imposition of trending ever-harsher sanctions. The deputy governor also hinted that in the future Gold might be in very much greater demand. He added that as China is now actively launching a futures contract for oil, denominated in RMB with the ability to convert to gold. This could quite radically change the rules of the game on the oil market, as it will allow raw material exporters to avoid using the US dollar entirely.
Considering the fact that China is the world's largest oil importer, this contract can become a new benchmark for traders, only this time based in Asia. Until now, the world market traded two main contracts for crude oil - WTI and Brent, and both are denominated in US dollars. In addition, using the Hong Kong and Shanghai exchanges makes it possible to convert the yuan into gold, which would be an additional incentive to reroute more of Russia’s trade through Asia.
In these days when trust in fiat currencies is visibly eroding, and crypto-currencies are the go-to investment rage with the thundering herds, it becomes clearer than ever that gold remains at the foundation of what mankind has always ultimately defined as a store of value. It is refreshing to hear from a major central bank such as Russia’s that such fundamental store of values are taken seriously, and not debased.
Edward Albee wrote in the Zoo Story “Sometimes it's necessary to go a long distance out of the way in order to come back a short distance correctly.” It seems that Russia’s central bank still remembers and cringes from lessons learned along the tortuous financial road to recovery it has traveled. Others seem to have forgotten their own similar histories, or simply are prepared to QE to infinity.
Time will surely tell.
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