Why Russia is growing gold reserves to record levels

MOSCOW: Fresh Russian Central Bank data shows that Moscow bought some 106 tons of gold since the start of 2018, with total reserves now approaching the 2,000 metric ton mark. News of the buy-up comes after a confirmation by the US Treasury Department that Russia dropped out of the top holders of US bonds.

Russian news agency Sputnik explores the move and its possible reasons.

According to Russian Central Bank figures, Russia's total gold reserves amounted to 1,944 tons as of June 2018, with the regulator pointing to a steady rise in holdings of the precious metal over the last decade (total gold reserves amounted to less than 500 tons in 2008). In the same period, the share of gold in Russia's total reserves grew from just 2.5 percent to over 17 percent.

Last week, the US Treasury confirmed that Russia had undertaken a large-scale dumping of its T-bills, bonds and notes, with holdings falling from $92 billion in December 2017 to just $14.9 billion now, thereby pushing Russia out of the top 33 major holders of US securities.

Russia's total international reserves, including gold, now amount to $460 billion, with the Russian Central Bank aiming for $500 billion.

US securities and the dollar, the latter serving as the de facto global currency, are currently considered to be among the most dependable high liquidity assets in the world. However, in an era of global economic instability stemming from geopolitical crises and fears of a global trade war, precious metals are seen as instruments providing security and a diversification of risk.

With total global unsecured debt hitting some $247 trillion (or 318 percent of global GDP) in June, gold is seen by many economists as a reliable store of value which, while also subject to fluctuations, cannot be drastically depreciated, or suffer an artificial collapse. The same cannot be said of treasuries (American or otherwise), which can collapse in value if a large debt holder were to suddenly dump its holdings.

Speaking to Sputnik, Alexander Egorov, a currency strategist at TeleTrade, a Russian broker, outlined the risks associated with US securities.

"If for one reason or another a group of states were to present their Treasury holdings to the US for payment, they would simply become worthless. This is a pyramid, because the US, by all appearances, will never repay its debt. This scheme will continue to work so long as it is believed in," Egorov said.