Following sanctions imposed on Russia, Putin is supporting a mass gold stockpile expansion and a sale of U.S. debt holdings.
With a trade war blazing, and sanctions laid across countries to force North Korea and its associates into submission, what happens to other economies? Countries like Russia are using this opportunity to step away from America’s mounting debt. It seems like other countries, particularly developing economies, prefer precious metals to the almighty dollar.
HOW MUCH GOLD HAS RUSSIA PURCHASED THIS YEAR?
Stats from the Central Bank of Russia show that more than $4.5 billion has been settled in gold since Dec. 31, 2018. Gold purchases by Russia have placed it fifth for largest gold stockpile globally. Russia now holds 2,119 tons of gold.
Hungary’s central bank purchased gold en-masse in October 2018, for a total of 28.4 tons. That’s nearly ten times its collective gold stockpile. Alongside Hungary is Poland, bringing its gold reserves up to more than 110 tons. It remains to be seen if these countries will begin stockpiling digital currency as well.
WHY IS RUSSIA EXPANDING ITS GOLD STOCKPILE?
Gold is traditionally used to hedge against economic uncertainty. As sanctions fall into place and the screws tighten on other nations, the U.S. dollar loses power within the world economy.
Russia is not alone in seeking to diversify out of U.S. debt holdings and transfer wealth into precious metals. Per the World Gold Reserve report cited above:
Gross purchases of 48 tonnes (t) and gross sales of 13t led to global gold reserves rising by 35 tonnes on a net basis in January, with sizable increases from nine central banks. This is the largest January increase in gold reserves in our records (back to 2002) and illustrates the recent strength in gold accumulation.
IS GOLD BUYING EXPECTED TO CONTINUE?
The primary factor cited in gold purchases seems to be global economic uncertainty. If sanctions grow tighter and more numerous, the global economy will continue to shutter. The stage is ready for gold transfers in the hundreds of tons this year, with several countries building growing gold stockpiles.
After seeing China’s private sector’s response to debt collapse, loss of position in the top five gold-holding countries and trade sanctions, it remains to be seen how other central banks will handle gold. Nasdaq has identified this period as a “Golden Cross” that while a mixed bag, can help indicate buying patterns when FED and other monetary policies are weighed in buying decisions.