The gold market and central banks Russia has been selling off its gold for nine months now. In September, there was a further reduction in gold reserves of 6.2 tonnes, and since January this year, the scale of sales from the Central Bank of Russia’s vaults has increased tenfold – to 62 tonnes of gold.

There has only been one other occasion when Russia disposed of its gold at such a rapid pace – in 1998, when 118 tonnes were sold from its reserves within three months.

Russia is selling off its gold. China is buying it

“Russia has a serious budget shortfall due to the war it is waging in Ukraine. And it wants to provide additional funding for the defence sector.

We should also bear in mind that Russia is selling gold outside the official channels on the London market.

The sell-off of reserves is taking place in Hong Kong, with the People’s Bank of China acting as the main buyer. This means that the impact of these transactions on the global price of gold will be minimal,” explained Adam Stroniavski, managing director of Mennica Skarbowa, in an interview with Euronews.

According to Chinese customs data, around 100 tonnes of Russian gold arrived in Hong Kong between January and July – three times more than during the same period last year.

The expert does not rule out the possibility that, as was the case following the sell-off of Russia’s gold reserves 28 years ago, Russia may, in due course, rejoin the ranks of gold-buying nations and rebuild its reserves.

Kazakhstan takes profits

A few days before the publication of the Bank of Russia’s data, investors learnt that Kazakhstan also intends to reduce its gold reserves. In the first eight months of the year, it was among the world’s largest buyers of gold.

It has now announced that it plans to reduce the share of gold in its foreign exchange reserves to 75 per cent by the end of the year.

“Kazakhstan’s sale of part of its gold and foreign exchange reserves may come as a surprise, given that for many years the country was one of the largest buyers of the precious metal.

This shift in trend is interesting, but is likely to be temporary and linked to the need to close the budget deficit or take profits. Kazakhstan has been buying gold for a long time, so it will now be able to sell it at a substantial profit,” says Adam Stroniavski.

The expert emphasises that both the scale of the sell-off – a reduction in reserves of approximately 3 per cent – and the fact that it is spread out over time mean that this operation will not have a significant impact on global gold markets either.

Is this the start of a mass sell-off of gold?

The change in approach by Russia and Kazakhstan raises questions as to whether this marks the start of a new trend amongst central banks, and whether Poland might follow the example of the Eurasian countries.

In recent years, it has significantly increased its gold reserves and could, in theory, take profits whilst gold prices remain high. According to Stroniavsky, such a scenario is highly unlikely.

“This is due to domestic circumstances: the policies of the government and the central bank diverge. In the current situation, it is highly unlikely that it will come to a sell-off of reserves,” Stroniavsky assesses.

The National Bank of Poland has been actively buying gold for several years now, and the country’s current reserves are approaching the stated target of 700 tonnes. According to the expert, this does not necessarily mean an end to purchases. Large gold reserves improve the country’s credit rating and contribute to the stability of the national currency.

Source: Logospress