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Russia’s Gold Reserves Increase to Highest Since at Least 1993

Aug. 27 (Bloomberg) -- Russia increased its gold reserves above 1,000 metric tons in July for the first time in at least two decades. It joined Kazakhstan in raising holdings for a 10th month, bolstering demand as investors’ faith in the metal waned.

Russia’s holdings, the seventh-largest by country, gained about 6.3 tons to 1,002.8 tons, the most since at least 1993, data on the International Monetary Fund’s website show. Kazakhstan’s reserves rose 1.1 tons to about 132 tons and Azerbaijan, the Kyrgyz Republic and Guatemala also added bullion. Mexico reduced its holdings, the data show.

Gold slid 15 percent this year as some investors lost faith in bullion as a store of value. The metal rebounded 20 percent from a 34-month low of $1,180.50 an ounce set in June as lower prices boosted demand for jewelry, coins and bars in Asia. The central-bank purchases are helping compensate for record outflows from gold-backed exchange-traded products this year.

“Gold reserves by emerging-market central banks are still relatively low compared to industrialized countries,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “They will continue to buy gold and to be a demand driver, and therefore to support the gold price.”

July Average

Gold for immediate delivery traded at $1,418.58 an ounce by 5:31 p.m. in London, after reaching $1,423.95, the highest since May 15. Prices averaged $1,288 in July, the least since September 2010. The metal reached a record $1,921.15 in September 2011.

Russian gold reserves were as much as 1,250 tons in 1915, according to data on the World Gold Council’s website. The London-based industry group wasn’t immediately able to confirm the last time before 1993 holdings were more than 1,000 tons.

While the Russian central bank will continue buying gold, the pace may vary, First Deputy Chairman Alexei Ulyukayev said in January. Bullion’s price fluctuations failed to change the bank’s view on gold as part of its reserves, Bank Rossii Chairman Sergey Ignatiev said in June.

Nations added 534.6 tons to reserves last year, the most since 1964, and may buy a further 350 tons this year, the council estimates. Net purchases will total 300 tons next year, according to Barclays Plc.

Fed Policy

Gold fell this year on speculation the U.S. Federal Reserve may slow its $85 billion in monthly asset purchases as the economy strengthens. Bullion rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system, increasing investors’ concern about currency debasement and accelerating inflation. The central bank will reduce buying to $75 billion at its Sept. 17-18 meeting, 65 percent of economists in an Aug. 9-13 Bloomberg survey expect.

Mexico reduced its holdings for a 15th month to 123.8 tons, according to the IMF data. Turkey’s reserves, which have swelled due to acceptance of gold in reserve requirements from commercial banks, gained by 22.5 tons to 464 tons.

Gold accounts for about 7.4 percent of Russia’s total reserves and about 19 percent of Kazakhstan’s, according to the council. That compares with almost 70 percent for the U.S. and Germany, the biggest bullion holders, the data show.

“If we look at many emerging countries, gold as a percentage of their total reserves is still very low,” said Han Pin Hsi, Singapore-based global head of commodities research at Standard Chartered Plc. “Given the continued quantitative-easing efforts by central banks of developed countries, it makes sense for countries to diversify and hold more reserves in gold. This is a long-term trend that will continue.”

To contact the reporters on this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net

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