Is Russia selling gold to support the ruble?

According to Yahoo Finance, Russia is selling it’s gold reserves to dampen the decline of the ruble. In this article, we read that Russia’s total reserves declined by $4.3 billion in just one week, which is being explained as evidence that Russia is selling some of it’s gold. The source of the Yahoo Finance article is a Russian website that suggests gold has been sold by the central bank of Russia, but the numbers they give simply don’t add up…

In the week of 28 November till 5 December, the total reserves of the Bank of Russia dropped from $420.5 billion to $416.2 billion. But just one paragraph later, this figure is explained as being the gold reserves of the country, instead of total reserves (gold + currency). Using simple math, we can clearly see that there is something wrong here.

According to the latest data, Russia owns about 1,168 tonnes of gold, which means 1,168,000 kilograms of solid gold bars. Using the current goldprice of $39,400 per kilo, we get a total value of $45.95 billion for all the gold Russia has in it’s vaults. The number of $420.5 billion mentioned earlier has to be the total reserves of the Russian central bank, of which about 10% is held as physical gold reserve.

Yahoo Finance could easily intercept the mistake, simply by doing their own calculations. Now, the reader of the Yahoo Finance article might think Russia sold $4.3 billion worth of gold in just one week, which amounts to more than 100 tonnes of gold at the gold price of today!

Now we can ask ourselves whether the wrong interpretation is the result of ignorance or whether it was done on purpose. The first thing can hardly be the case, because Russia has steadily been buying gold since 2006. Actually, the central bank has increased it’s gold purchases this year. In October they bought about 20 tonnes of gold and in November they added another 19 tonnes to their reserves. It is hard to believe Yahoo Finance was not aware of these facts when writing this misleading article.

Russia has been buying gold for a while

The wrong assumption of Yahoo Finance that Russia has been selling gold lately to support the ruble is contradictory to what is actually happening. The decline of the ruble started months ago, but this has not disrupted gold purchases by the Russian central bank. Actually, Russia has been by far the biggest buyer of gold among all central banks worldwide. The chart below explains it all…

central-bank-gold-sales-wgc

Russia has been by far the biggest buyer of gold among all central banks worldwide in 2014

Foreign exchange policy

The Russian central bank has already explained it has no intention to support the ruble exchange rate on a structural basis. On the contrary, Russia wants to let the ruble float free against other currencies. This means less and less intervention in the forex market by the Bank of Russia. These statistics sent to us by a member of the ‘Goudstudieforum’ show that the Bank of Russia has indeed no intention of artificially supporting the value of the ruble. In the last couple of months, the Russian central bank has barely sold any dollars of euro’s. When we put this data in a graph, we can clearly see how Russia stopped actively supporting the ruble by selling foreign currency reserves. From time to time the Bank of Russia has sold some dollars to scare speculators away from shorting the ruble.

forex-interventions-bank-of-russia

Russian central bank wants a clean float of the ruble (Source: CBR)

Think twice

The message of this article is to show the reader the importance of checking facts and sources of both the mainstream and the alternative media. Please do this as well for the articles we publish on Marketupdate. A wrong translation of false interpretation of facts and figures can lead to conclusions that are the complete opposite of what is actually happening. Always consult different sources to check news facts and events to place them in the proper perspective.

Update (14 december 2014):

Yahoo Finance fortunately spotted the mistake in the article after publication:

“Editor’s Note: Earlier it was reported that the Central Bank’s gold reserves decreased by $4.3 billion, quoting Vesti Finance. However, in actuality, it is international reserves assets that have decreased — not gold. Appropriate changes have been made.”

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