Why Russia will not sell its gold to solve the rouble crisis

Contrary to market rumours, Russia has only been adding to its gold reserves over the past two months

Following the sharp fall in the Russian rouble, bullion markets were awash with speculation that the country would dip into its gold reserves to meet its dollar requirements and shore up its currency. However, data show Russia, which has the world’s six largest gold reserve, has been adding to its stockpile.

At the end of September 2014, the country had 1,150 tonnes, up 13 per cent annually, according to data from the World Gold Council. Since then, however, it has been adding to its reserves and late on Friday, Russia’s central bank announced it had added 19 tonnes to its reserves of foreign exchange in October, as well as in November, taking its total holding to 1,188 tonnes, the most since at least 1993. The next data release is scheduled for January. “Hence, we now don’t think Russia will sell gold from its reserves,” said a bullions analyst with a foreign research firm.

The rouble has been falling steadily since early November and collapsed earlier this month following a spectacular decline in the price of crude oil to five-year lows. Russia, facing sanctions from the Western world over its treatment of neighbour Ukraine, is heavily dependent on exports of crude oil to earn dollars for paying for its import needs.

However, selling from gold reserves is unlikely to help.

“In any case, the value of gold reserves is only around $44 billion, which is not very helpful to meet its total external debt of $715 billion,” the analyst said.

Russia's totalforeign exchange reserves, including currencies, shrank by $9.7 billion in November to $418.9 billion, the lowest level since 2009. Russia's forex reserves, including gold, were $511 billion at the start of 2014.

However, T Gnansekar, director of risk advisory firm Commtrendz, doesn't rule out possibility of Rusia selling gold, but says that "Russia has many other options before taking the gold route."

Gold is typically the last thing to be sold from reserves as it is an asset stabilizer, as well as a valuable asset, especially when the currency is vulnerable, like the rouble is now.

Selling gold from reserves for meeting crises is not a common phenomenon, either. India did use its gold to resolve a payments crisis in 1990, but only mortgaged it and later had it released and returned once the economy had stabilised and the currency crisis was resolved.

Meanwhile bullion prices are likely to remain volatile; Gnansekar cautioned that gold could get extremely volatile in the coming days because of holidays and thin volumes.