Russia goes for gold, drops US dollar, amid rising tensions

With geopolitical tensions on the rise, the incentive to invest in the American dollar is much less attractive that it used to be

Published

 55 mins ago 

on

 July 29, 2018

By

 Frank Sellers

28 Views

0

Russia’s reserves of the U.S. dollar have been on the wane as of late. Russia isn’t investing American currencies or American debt, but is choosing to put its money into something with a more diverse portfolio of uses, like gold, for instance. Russia’s reserves of U.S. dollars are down to $14.9 billion in May from $96.1 billion in March, while increasing its gold reserves by over 100 tons since the beginning of the year. With geopolitical tensions on the rise, it only makes sense, and since much of those tensions are with the Americans, the incentive to invest in the American dollar is much less attractive that it used to be.

Nasdaq reports:

Russia‘s U.S. dollar reserves have shrunk from $96.1 billion in March to just $14.9 billion in May, according to the Russian Central Bank. Its governor, Elvira Nabiullina, says the decision will help protect the Russian economy and diversify the bank’s reserves.

Back in March, Russian President Vladimir Putin called the monopoly of the U.S. dollar “not reliable enough and dangerous for many”.

Notably, the Bank of Russia has been buying gold every month since March 2015, overtaking China as the fifth-biggest sovereign holder of gold.

Russia added 500,000 ounces of gold (15.55174 tons) to reserves in June and bought some 106 tons of gold since the start of the year, with total reserves now approaching the 2,000-metric-ton mark. Last year, Russia added a record 224 tons of gold to the reserves.

The U.S. is still the largest owner of metal, followed by Germany–8,134 and 3,374 tons, respectively.

Both political and economic reasons prompted the Russian central bank‘s decision.

First, mindful of geopolitical tensions, the regulator has apprehensions that Russia-owned treasuries can be frozen. Ironically, the recent meeting between Trump and Putin, not only failed to ease tensions, but amped them up, with some American legislators calling for tougher sanctions against Russia.

The Russian central bank hinted that it could invest the money from the USD sale not only into gold, but also into International Monetary Fund (IMF) bonds and Chinese bonds.

In periods of global financial or political crises, gold is much more useful than securities or cash, although gold is also prone to price fluctuations.

Russia’s liquidation of its U.S. Treasury holdings has had an insignificant impact on the dollar, fo far. Instead, it’s China—the world’s largest holder of U.S. Treasuries (about $1.2 trillion)–that has the most power to impact the dollar rate and the yield of US bonds.

With Russian experts lauding the central bank‘s decision, some warn however that gold prices could be manipulated on the market like oil.

“In the event of a global decline in the interest of large sovereign investors in US Treasury bonds, an increase in speculative activity in precious metals in order to artificially lower their market valuation can be expected,” a Russian expert told RT.

The upbeat prognosis of Russia‘s gold mining industry also boosts the central bank‘s confidence that buying up gold is the way to go.

“Our gold mining industry is very well developed and it is ready to supply gold. That is why our attitude towards here is based upon diversification of our reserves,“ Nabiullina was quoted as saying.

The Russian gold mining industry has almost doubled its volume of extraction over the last two decades and looks forward to registering new records soon.

In 2017, Russia extracted 8.8 million ounces, accounting for 8.3 percent of total global production. The newly discovered gold deposits will reportedly allow miners to increase extraction by half in seven years. By 2030, extraction is expected to grow by nearly eight million ounces. The increase could make Russia the world’s second largest producer of the precious metal.

Rather than easing the situation between Moscow and Washington, D.C.,  Russian President Vladimir Putin’s Helsinki meeting with United States President Donald Trump simply led to more calls for sanctions against Russia from American lawmakers, more accusations against the American president, and more trumped up charges against anyone on American soil who employs a Russian accent, or has interacted with someone else who does, referring to the Butina case. The political opposition in America serves as a dangerous geopolitical intervention, as it has a very negative effect on international relations not just for America, but for much of the world, and largely exists out of a desire to delegitimize Donald Trump. It’s not helping America, it’s not helping Russia, it’s not helping the world, and it’s not really helping the dollar, either