Traders
Betting Russia’s Next Move Will Be to Sell Gold by Debarati Roy |
Dec 17, 2014 2:40 PM ET
Russia’s surprise interest-rate
increase failed to stop the plummeting ruble. Another tool
available to repair economic havoc caused by sanctions and
falling oil prices: selling gold.
Russia holds about 1,169.5
metric tons of the precious metal, the central bank said
last month. That’s about 10 percent of its foreign reserves,
according to the London-based World Gold Council. The country
added 150 tons this year through Nov. 18, central bank Governor
Elvira Nabiullina told lawmakers. The Bank of Russia declined
to comment on its gold reserves.
Russia’s cash pile has dropped to a five-year
low as its central bank spent more than $80 billion trying
to slow the ruble’s retreat. The currency’s collapse combined
with more than a 40 percent tumble in oil prices this year
is robbing Russia of the hard currency it needs in the face
of sanctions imposed after President Vladimir Putin’s annexation
of Crimea. A fall in gold prices signals that traders are
betting that the country will tap its reserves, according
to Kevin Mahn, who oversees $150 million at Parsippany,
New Jersey-based Hennion & Walsh Asset Management.
“Russia is at a critical juncture and given
the sanctions placed upon them and the rapid decline in
oil prices, they may be forced to dip into their gold reserves,”
Mahn said. “If it happens it will push gold lower.”
Gold futures for February delivery added
less than 0.1 percent to settle at $1,194.50 an ounce on
the Comex in New York. Futures slumped 28 percent in 2013.
Loan Collateral
“There are a number of ways that they could
use their gold,” Robin Bhar, an analyst at Societe Generale
SA in London, said today by phone. “They could use it as
collateral for bank loans, or for loans from multi-lateral
agencies. They could sell it directly in the market if they
want to raise foreign-exchange” reserves, including to get
more dollars, he said.
If Russia decides to sell, the figures to
confirm the move wouldn’t be available for a few months,
Bhar said.
Selling gold is usually “one of the last
weapons” for central banks because some use the metal to
help back their currencies, George Gero, a precious-metal
strategist at RBC Capital Markets in New York, said in a
telephone interview. “They are probably still accumulating
gold and keeping it for a bigger crisis,” he said.
Russia has tripled its gold reserves since
2005, according to data compiled by Bloomberg. Its holdings
compare with about 70 percent for the U.S. and Germany,
the biggest bullion holders, the World Gold Council data
show.
“Russia has been adding to their gold through
the turmoil, and it’s their reserve asset, so they would
utilize it ultimately,” Michael Widmer, metals strategist
at Bank of America Corp. in London, said in a phone interview.
“Utilizing can mean a whole range of things. They could
use it to raise cash, or use it as swap, or use it as collateral.”
Ukraine Gold
Ukraine’s gold reserves contracted by about
35 percent to 26.1 metric tons in October, data on the International
Monetary Fund’s website show. The nation is seeking to stave
off a default as its economy shrinks under the strain of
the conflict and spending cuts.
Gold prices fell 8.4 percent last quarter
amid concern that the Federal Reserve would raise rates
as the U.S. economy showed signs of improvement. The Fed
will review the time frame for action on borrowing costs
at the two-day Federal Open Market Committee meeting that
ends Wednesday.
Russia’s central bank buys gold from the
domestic market and from the nation’s bullion banks, the
World Gold Council said.
“Gold may come under further pressure because
of Russia,” James Cordier, founder of Optionsellers.com
in Tampa, Florida, said in phone interview. “Oil prices
are not on their side, so now the next option they have
for raising cash is selling gold. There is some talk that
the country has either started selling or is making arrangements
to sell their gold.”