Russia's CBR buying gold could develop local commodity market

Russia's CBR buying gold could develop local commodity market
The Central Bank of Russia (CBR) will keep increasing the share of gold in the gross international reserves (GIR)
By bne IntelliNews November 27, 2017

The Central Bank of Russia (CBR) will keep increasing the share of gold in the gross international reserves (GIR) reserves and justifies the need with "geopolitical setting," deputy head of the regulator Sergey Shvetsov said on the precious metals conference, as cited by Reuters on November 24.

The presence of such a large buyer on the domestic gold market could improve its infrastructure, similar to the recent development of the commodity derivative market for oil products.

"At all times all central banks have their own policy towards this precious metal," Shvetsov noted, adding that developed countries tend to hold more gold in GIR than the developing ones.

The central banker reminded that under the executive order of the President Vladimir Putin the CBR has been increasing the share of gold "for many years," with the program to continue.

"I will not stop at the geopolitical setting, you are all smart people to understand the role of gold in maintaining the financial and economic security of the country," he added.

In the meantime as the CBR has free floated the ruble, maintaining high liquid reserves and constant presence on the monetary market is no longer required, which also justifies higher share of gold.

As of November 1 2017 the gold in CBR's reserves amounted to 57.9mn ounces or 1.8 tonnes, accounting for 17.3% of GIR. Shvetsov did not disclose what is the share of gold targeted by the CBR.

Currently total Fx/gold reserves fluctuate at around $425bn and the regulator has reiterated its goal to incrase the reserves to $500bn.

While the trading market for gold in Russia is still seen as weak by the CBR, the presence of the regulator as the buyer could support the liquidity and the spot prices. 

Should gold producers enter the Moscow Exchange the CBR could increase the volume of purchases, as it "doesn't care from whom to buy" but required a certain liquidity and economically justifiable commissions and fees, Shvetsov said.

The CBR also plans to move away from the spot market to supply futures in the short to medium-term as this instrument has "greater development potential" as both a hedging and supplies tool.

However, the CBR will only act as a buyer on the gold derivatives market, although "nothing theoretically stops us from selling [the gold]," first deputy head of the regulator noted. 

Supply futures for gold are planned to be introduced in Moscow in 2018, and Shvetsov urged financial and industrial enterprises to use these derivatives, stressing that having gold producers access the commodity market directly was of utmost importance.

Another big local buyer on the Russian gold market could be Russian Fund of Precious Metals and Minerals (Gohran), which plans to keep acquiring gold and objects of value in 2018, deputy head of the Finance Ministry Alexei Moisseev said at the same conference.

In 2018-2020 the fund could spend RUB8.5-10.5bn annually on acquiring precious metals and minerals.

"Diamonds and uncut diamonds will not be bought en masse as they have no artistic value and are not very liquid, but we will buy gold to increase the liquidity of the fund" Moisseev explained.


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