After years of purchasing significant quantities of gold, the Central Bank of Russia will cease buying more as of April 1st. The country announced it yesterday without explaining the move.
Local analysts, however, claimed that the nation already has a lot of gold stashed in reserves and might start selling to international investors because of the high demand.
Russia Stops Buying Gold
The precious metal is often regarded as the preferable safe-haven investment instrument by many. Individual or institutional investors, businesses, and even central banks and governments choose to rely on it. Russia, for example, has been especially eager to buy substantial quantities in the past five years to increase its bullion.
A recent Bloomberg report informed that after building a considerable amount worth over $120B, the world’s largest country by landmass will halt purchasing more from April 1st.
The bank didn’t provide a valid explanation on the move. Tatiana Evdokimova, an analyst at Nordea Bank in Moscow, believes that gold accounts for about 20% of Russian international reserves. A historically high level, especially when compared to other central banks.
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She added that the Central Bank of Russia “probably doesn’t want to increase gold’s share in reserves, while the size of reserves is falling.”
Sell Gold Internationally
According to Dmitry Dolgin, ING Bank’s chief economist in Russia, halting massive gold purchases is a clear sign for sellers to turn their attention to the international scene:
“The central bank is now signaling to gold sellers that they should redirect their supplies externally. Global demand seems to be high.”
Dolgin also added that large buyers from London, India, Turkey, and Singapore have already expressed interest in purchasing portions of Russia’s gold.
But the demand from investors is rising almost everywhere in the world today. A popular precious metal dealer recently noted that in March, the interest reached the previous highest level of early 2009 – during the last financial crisis.
However, the situation now seems considerably different, mostly because of the global chaos caused by the COVID-19 outbreak. As most economies are shut down, the physical gold supply has also been affected. Consequently, this led to extremely high levels of spread fluctuations and a shortage of actual gold for investors to purchase. Independent metals analyst, Ross Normal, explained:
“Because of the supply chain issues, it has been difficult to [deliver gold], and hence the premium went sky high.”
And as basic economic principles dictate, when the supply of an asset decreases, while the demand increases, its price should, in theory, rise.
Even though gold’s price plunged when investors were panic selling all their assets in mid-March, it has since recovered well and is currently trading at $1616 per ounce. In fact, it’s one of the best-performing assets during this time of uncertainty.