Russia & China Keep Up Their Gold Buying In Q1 2019

Moves to de-dollarize economies being accelerated

Russia’s Central Bank purchased another 55.3 tonnes of gold in the first quarter of 2019, bring their total reserves in the metal to 2,163.8 tonnes, and 17% of total reserves. China followed suit, buying 33 tonnes over the same period. Russia bought 274.3t last year — the fourth consecutive year of +200t increases – while drastically reducing its US Treasury holdings, as part of its ‘de-dollarization’ drive” according to the World Gold Council. Russia now holds just a tiny proportion of US debt at less than US$15 billion. But it also holds the worlds largest gold deposits and could arguably be in a position to use that as a tangible asset to generate support for currencies such as the Ruble and the RMB Yuan.

The Gold buying strategy Russia and China have adopted has been dismissed as meaningless by many American economists. However, both Russia and China are looking to offer an alternative source of financing and having currencies backed by hard assets. The American system is based on leveraging debt as an asset, and this has caused problems in the past. A return to an asset-based financial and credit system suits both as Beijing and Moscow have found the US dollar and the global financial systems used to support US dollar and other global transactions can be used as a trade weapon against them. To push against a debt based system, one needs assets and Russia is fortunate enough to have plenty of these, mostly but not exclusively in the form of oil and gas reserves, which are among the worlds largest. But to sell those assets requires a buyer – and China is currently the third largest consumer in the world at 13 billion barrels a day, just behind the EU (15 billion) and United States (20 billion). However, China’s consumption is expected to rise.

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There is another angle to this, although again it is regarded as “meaningless” by most US economists. That said, with US reserves currently standing at some 4,582 tons; a resurgent interest in establishing and adding to gold reserves has a special attraction for China and Russia, as reaching those kinds of figures is an achievable target for them. Gold is an emotive metal and remains linked to the U.S. dollar in those terms. This is because it behaves consistently as a multi-faceted asset. The price of gold is often sensitive to the overall perceived value of fiat or paper currencies in general terms. During times of tension or geopolitical turmoil, the price of gold tends to rise as faith in governments falls. What do the Russians and Chinese know that the Americans don’t?

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