The Russian central bank has been investing heavily in gold this summer, adding 6 tonnes of the precious metal to its reserves in May 2019. This put the country’s total gold holdings at nearly 2,200 tonnes as of June 1, 2019, up by 0.3 percent in May. Russia has added 77 tonnes to its gold reserves since the beginning of this year. About 40 percent of that was purchased this past February.
The country’s central bank is not hiding its activities. In fact, it released information about its latest acquisition via a press release shortly after the purchase. The May purchase placed Russia in a prime position to benefit from the gold rally that took place in June. At time of writing, Russia holds nearly one-fifth of all the gold reserves in the world, according to the World Gold Council.
Is Russia Preparing for a U.S. Dollar Crisis?
Euro Pacific Capital CEO Peter Schiff said he suspects Russia is buying up gold in preparation for “the impending dollar crisis.” Schiff and other like-minded analysts have expressed concern for some time now that central banks around the globe are attempting to diversify their investment holdings away from the U.S. dollar.
However, for Russia, the motives may be less about a crisis for the dollar and more about self-preservation. Russian president Vladimir Putin has made no secret of his determination to break the country’s reliance on the U.S. dollar. Under his direction, the country’s central bank has been buying up gold for nearly a decade, nearly quadrupling its gold reserves during that time.
This process of diversifying away from the U.S. dollar has a name: de-dollarization. Economists say if the trend in Russia spreads to other countries, it could create massive demand for gold or for other currencies perceived to be more valuable and less of a potential threat, such as the Chinese yuan.
Most agree, however, that a country dedicated to moving away from the dollar is more likely to find precious metals, like gold, attractive rather than another national currency. De-dollarization for Russia or other countries whose foreign policies sometimes place them at odds with the United States could also help insulate those countries against trade sanctions by the U.S.
How Long Can Russia Keep This Up?
Although there seem to be some clear benefits to Russia’s gold-buying spree, many experts predict the country will not be able to maintain its current pace of acquisition much longer. With more and more countries moving toward acquiring gold, an extended “bull run” seems likely.
“Gold’s fear-driven bull market hasn’t expired yet,” declared Clif Droke, an analyst for Seeking Alpha and longtime trends expert. “Gold…is blazing its own path based primarily on the widespread uncertainty over the future state of the global economy,” he added.