Ukraine Gold Reserves Contract as Russia Buys More Bullion

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Ukraine’s gold reserves contracted to the smallest in six years as Russia bought bullion, taking its holdings to the biggest in at least two decades.

Ukraine reduced bullion reserves by about 35 percent to 26.1 metric tons last month, data on the International Monetary Fund’s website showed. Russia raised holdings by 1.6 percent to 1,168.7 tons by the end of October.

Ukraine’s holdings of foreign currencies and gold are shrinking as the fighting in Donetsk and Luhansk slows the economy and weakens the hryvnia. The country, which added about 14.9 tons of gold in the two years through April, sold the metal last month when prices approached a four-year low.

“It’s a country needing some cash,” Brian Lucey, a finance professor at Trinity College Dublin and former economist for the Central Bank of Ireland, said today by phone. “They’ve been adding gold over the years. It would make sense to move it off their books and get some money for it.”

The 14.3-ton sale last month, valued at about $562.6 million based on October’s average price, took holdings to the lowest since February 2008.

Bullion for immediate delivery lost 0.3 percent this year to $1,198.45 an ounce in London, according to Bloomberg generic pricing. Prices, which averaged $1,223.10 in October, touched a four-year low of $1,132.16 on Nov. 7.

Russia’s Reserves

While Ukraine sold its gold last month, Russia purchased almost 20 tons. Russia bought about 150 tons so far this year, central bank Governor Elvira Nabiullina told lawmakers on Nov. 18. That indicates another 15.7 tons or so were added so far in November. The country has tripled its gold reserves since 2005 and is holding the most since at least 1993, IMF data show.

The Ukrainian crisis has intensified since rebels in the breakaway regions of Donetsk and Luhansk held Nov. 2 elections that the government in Kiev condemned as illegitimate. Ukraine, the European Union and the U.S. accuse Russian President Vladimir Putin of supporting the separatists, while Russia denies involvement. U.S. Vice President Joe Biden is scheduled to arrive in Kiev for talks today with Ukrainian President Petro Poroshenko.

Central banks globally are adding gold to reserves after reducing holdings for about two decades from the late 1980s. Worldwide purchases will be 400 tons to 500 tons this year, the London-based World Gold Council said last week.

Kazakhstan, Azerbaijan, Belarus and Mauritius added gold to reserves in October, while Mexico cut its holdings, IMF data show.

Ukrainian Gold

Ukraine increased gold holdings in all but three years over the past two decades, the IMF data show. It last sold the metal in May after holding a record 42.9 tons in April. The amount it now owns would account for about 0.1 percent of global central bank reserves, according to IMF data.

Gold had accounted for about 9.6 percent of Ukraine’s total foreign reserves, according to latest data from the gold council. That was almost the same for Russia and compares with about 70 percent for the U.S. and Germany, the biggest bullion holders, the data show.

Ukraine’s total foreign-currency reserves plunged to $12.6 billion in October, the lowest level since March 2005, the central bank said Nov. 7. Authorities helped state-owned NAK Naftogaz Ukrainy repay a Eurobond and also helped finance natural gas imports from the EU.

“If the situation warrants, especially because of the tensions between Ukraine and Russia, we could see some further reduction in reserves,” Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., said today by phone. “Ukraine contributes to a little portion of the total central bank reserves, so there wouldn’t be much impact on prices.”