Russia's Central Bank Just Bought 500k Ounces Of Gold

Today’s AM fix was USD 1,600.00, EUR 1,261.43, and GBP 1,017.17 per ounce.
Yesterday’s AM fix was USD 1,618.75, EUR 1,274.81, and GBP 1,029.41 per ounce.

Silver is trading at $28.03/oz, €22.17/oz and £17.91/oz. Platinum is trading at $1,466.00/oz, palladium at $618.60/oz and rhodium at $1,215/oz.

Gold fell $13.80 or 0.82% yesterday in New York and closed at $1,606.40/oz. Gold fell further in Asia and in early European trading prior to recovering back to the $1,600/oz level.

goldcore chart

Gold in USD – 2 Day

In volatile up and down trade, gold dropped for its 3rd day after Bernanke and the Fed failed to announce the latest round of QE.

The Fed did expand “Operation Twist” by $267 billion and will continue it to the end of 2012, instead of expiring in June which was gold bullish. 

Therefore, the sharp fall in gold and then even sharper rise and then fall again was unusual trading. 

It appeared that an entity, possibly a large institution, wished to have gold close lower on the day and there was high volume selling at the $1,620/oz mark which capped prices. 

Bernanke said the central bank was concerned Europe’s prolonged debt crisis was dampening U.S. economic activity and employment.  

Lower gold prices allowed jewellers and gold brokers in Asia and central banks to buy on the dip.

“The physical market noted buying interest overnight and today,” according to Reuters.

While a Reuters poll shows that Wall Street bond firms feel there is a 50% chance of the Fed launching QE for a third time, we continue to believe that QE3 continues to be inevitable. 

The Russian central bank has again increased its gold reserves by 500,000 ounces.

Bank Rossii announced that it had increased gold stocks in its international reserves by 0.5 million troy ounces to 29.3 million troy ounces in May from the end of April.

Russia’s gold and foreign exchange reserves declined to $512.2 billion in the week ending June 15 from $512.4 billion a week earlier. Russia’s reserves remain very sizeable and have increased in 2012 as they were at $498.6 billion at year end 2011.     

IMF Russia Gold in Million Fine Troy Ounces (Monthly Chart)

The reserves include monetary gold, special drawing rights, reserve position at the IMF and foreign exchange.

On May 25th, the deputy chairman of Russia’s central bank, Sergey Shvetsov, said that the Bank of Russia plans to keep buying gold on the domestic market in order to diversify their foreign exchange reserves.  

“Last year we bought about 100 tonnes. This year it will be less but still a considerable figure” Shvetsov told Reuters.

IMF Russia Gold in Million Fine Troy Ounces (Monthly Data)

Today, Alexei Kudrin, Russia’s former finance minister said that a full-blown economic and financial crisis in the euro zone is inevitable and will develop within a year.

“Greece will not be able to fulfil its obligations (towards lenders),” Mr. Kudrin, said at a conference.

“A serious financial and economic crisis will hit Europe within a year… with Spain being its next victim, and then possibly Italy,” he added.

“The time (for avoiding it) has already past.”

Russia may be planning to give the ruble some form of gold backing in order to protect the ruble from devaluations and protect Russia from an international monetary crisis.

The Bank of Korea  has said that its current gold holdings are too small and that the BOK may buy more gold this year in order to diversify its foreign exchange portfolio which is exposed to the dollar.

Eugene Kim, chief investment officer at the central bank’s foreign-exchange reserve management group, said its gold holdings are “too small” given the size of its forex reserves, which stood at a record-high of $310.87 billion at the end of May, and that the BOK might buy more bullion this year.

According to the BOK’s latest data at end-2011, U.S. dollar-denominated assets accounted for 60.5% of South Korea’s total forex reserves, while other currencies such as the euro, yen and pound made up the remaining 39.5%.

The BOK said that they will not be selling their euro assets but they will be diversifying into yuan denominated assets – Chinese debt and equities. 

IMF South Korea Gold in Million Fine Troy Ounces (Monthly Chart)

He said the BOK isn’t currently investing in the Brics nations except for China, but it is closely looking for opportunities in other Asian and Latin American countries–such as Indonesia, Malaysia, Thailand, India, Brazil and Mexico–from a long-term perspective.

Mr. Kim said the central bank needs to boost its gold holdings even after two purchases last year that took the amount to 54.4 metric tons, or about 1% of the total reserves.

“Unlike other financial instruments, gold doesn’t produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year,” he said.

The Bank of Korea’s gold reserves remain tiny as a percentage of their  large foreign exchange holdings. They are also very small when compared to the gold holdings of western central banks many of whom, such as the Federal Reserve, have over 50% of their reserves in gold bullion.

Cross Currency Table – (Bloomberg)

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