Russia's central bank resumes buying gold from domestic producers as sanctions bite

The regulator suspended purchases in 2020, since when the level of reserves has remained largely unchanged

Newly cast ingots of 99. 99% pure gold stored at Krastsvetmet non-ferrous metals plant in Krasnoyarsk, Russia. Reuters

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Russia's central bank has said it will resume buying gold from the domestic market, as it takes measures to help ensure financial stability amid western sanctions against the country over the war in Ukraine.

Russia held a little under 2,300 tonnes of gold, or 21 per cent of total reserves, at the end of January, according to the World Gold Council. Bullion was trading at $1,988.32 and ounce at 8.23am UAE time on Monday.

“There has been no indication given around the scale of future purchases, but we will continue to monitor developments,” Krishan Gopaul, market intelligence manager at the council, said in a blog post on March 4.

The Central Bank of the Russian Federation suspended its gold purchases in 2020, since when the overall level of gold reserves has remained largely unchanged. Russia's banking regulator announced on February 28 that it planned to resume purchases from domestic producers.

The country faces deepening economic isolation following sanctions by the US and European countries. Russia's military offensive in Ukraine, and the sanctions imposed on Moscow, will have a “severe impact” on the global economy, the International Monetary Fund said on Saturday. The conflict has already driven up energy and commodity prices, adding inflationary pressures from supply chain disruptions and sending a wave of more than one million Ukrainian refugees to neighbouring countries.

The World Gold Council, which released the first set of central bank gold reserve data for 2022, said that global gold reserves fell by 12 tonnes in January, when central banks' selling outweighed purchases of the precious metal.

“On the face of it, this is a continuation of the switching between net purchases and sales we have seen in recent months,” Mr Gopaul said.

The bulk of the decline in January was due to a sizeable sale from Kazakhstan. Its gold reserves fell by just over 17 tonnes, taking the level of gold reserves to 385 tonnes or 66 per cent of total reserves — the lowest tonnage level since October 2020.

“Kazakhstan is a significant gold producing country and their central bank has traditionally bought from domestic sources. It is not uncommon for those countries that buy from domestic sources to swing between buying and selling,” Mr Gopaul said.

Other sellers include Russia with 3 tonnes, Poland with 2 tonnes, and Uzbekistan and Mongolia each with 1 tonne.

Gross purchases totalled less than 13 tonnes in January, with Turkey's central bank accounting for the majority of it.

Turkey bought more than 10 tonnes [of gold] during the month, pushing gold reserves back in excess of 400 tonnes or 25 per cent of total reserves, the WGC data showed.

India made its 12th consecutive monthly purchase, adding over a tonne during the month and taking total gold reserves to 755 tonnes.

Qatar and Ireland also bought gold in January — 0.7 tonnes and 0.5 tonnes, respectively, with Ireland continuing to represent developed market interest in gold, the WGC said.

“We believe it is likely that central bank demand for gold will continue its positive 12-year trend in 2022, but may not match the strong performance of 2021,” Mr Gopaul said.

Updated: March 07, 2022, 4:25 AM