You are here
Russia sells gold as its price rises
As More Investors Seek Shelter in Gold, Russia Is Only Too Happy to Sell
By Andrew E. Kramer
The New York Times
Thursday, July 7, 2011
http://www.nytimes.com/2011/07/08/business/global/russia-sells-gold-as-w...
MOSCOW -- Two years ago during the global recession, gold bugs took note when Russia's president, Dmitri A. Medvedev -- taking a swipe at the American dollar -- proposed that central banks hold reserves in what would be a new, gold-backed international currency.
But more recently, as gold prices have soared -- in part on market expectations that central banks will begin adding to gold reserves as a buffer against global uncertainties -- Russia is not following its own advice.
Far from hoarding gold, Russia is selling it. The country's domestic gold mining industry has continued to sell onto international markets. Russia has also eased gold trading rules to let more gold be mined and exported more quickly.
... Dispatch continues below ...
Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property
Company Press Release, October 27, 2010
VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:
-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.
-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.
-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.
Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.
"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."
For the company's full press release, please visit:
http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf
Meanwhile, the Russian central bank is buying gold at a desultory pace that is barely keeping up with its overall accumulation of foreign currency reserves.
In short, Russia is selling gold because this has been a seller's market -- and the nation needs the money. After years of surpluses before the recession, Russia's federal budget has slipped into a deficit. And economists predict that Russia could also run a trade deficit within a few years, something that could be addressed in part by exporting gold.
Gold, which many investors view as the ultimate safe haven, is off the recent highs it reached in April. But the price is still up 62 percent in the last two years. And just this week gold futures contracts have risen in response to continued uncertainty over the European debt crisis. On Thursday spot gold contracts rose to $1,530.20 an ounce, up more than 3 percent for the week so far.
Russia was the fourth-largest gold producer globally last year, following China, Australia, and the United States. (China in 2010 mined 351 metric tons of gold; Australia 261 tons and the United States 234 tons. Russia mined 203.)
When asked about Russian officials' supposed commitment to holding gold, the central bank issued written responses.
"The Bank of Russia is not committed to buying any particular amount of gold," the bank said. "Nor is there any official target amount of gold purchases. The bank buys gold at a market price, and its buying intentions completely depend on the market conditions."
And despite Russia's frequent criticism of the dollar's status as an international currency, the bank statement said its gold policies were based purely on its investment judgment of the value of gold as a reserve. "It doesn't result from the wish to diversify away from any particular asset or currency," the bank said.
Gold as a share of Russia's central bank's reserves has actually increased -- to 7.8 percent of the total this year, from 5.3 percent in January 2010. But nearly all of that gain is because of the rising value of the gold over that period.
The Russian bank's gold holdings are far below the global average of 12.1 percent as reported by the International Monetary Fund. And Russia's portion is minuscule compared with the United States, which holds 74 percent of its reserves in gold, according to the Treasury Department.
The Russian central bank now, as before the economic crisis, keeps about 50 percent of its reserves in United States dollars. It needs those assets on a daily basis to intervene in currency markets to smooth out fluctuations in monetary flows from Russia's main exports of oil and natural gas, which are priced in dollars.
Russia's gold behavior seems grounded in the country's hard-learned lessons about commodity markets. Since its financial crisis in 1998, Russia has enacted policies intended to counterbalance the historical cycles of commodity prices to protect the economy during downturns.
Russia, for example, which is currently the world's largest oil producer, imposes high marginal taxes on oil exports during price spikes, with the proceeds shunted to Russia's sovereign wealth funds. During the recession, as oil prices plummeted, the government released a portion of these funds as a shock absorber for its domestic economy.
But gold, unlike oil, is naturally countercyclical. In times of economic insecurity, investors tend to buy gold. And so, for Russia's economy, an economic crisis can be a good time to sell, not stockpile.
And in contrast to tight state control of the far more lucrative petroleum industry, authorities have largely liberalized gold mining and trading in Russia, and have imposed no export restrictions or tariffs.
Russia formerly maintained tight Soviet-style secrecy around its gold reserves. Gold's glasnost occurred in 1992, when Yegor T. Gaidar, then prime minister, instructed the newly created central bank to publicly declare its holdings, at that point about 300 metric tons. (Last month the central bank held 854 metric tons of gold, while the United States Treasury, representing a much larger economy, reported holding 8,133 metric tons.)
There was more loosening in 1996 when Gokhran, a state agency that formerly had a monopoly on gold purchases, surrendered that role. Now approximately 30 private banks are licensed to purchase gold. The largely liberalized sector has flourished.
"Our leaders pay far less attention to gold than to petroleum," Yuri V. Kirilov, director of Irmita-Konsalt, a consulting company, said in an interview.
The formerly highly secretive Gokhran agency, one of two state repositories for gold along with the central bank, also now publishes its reserves of gold bars. It had 12.3 tons in June. And like the central bank, it is not bulking up. So far this year, the agency has purchased only 375 kilograms of gold, according to Prime-Tass news agency.
Gokhran, formed in 1920 as a depository for jewelry confiscated from the bourgeoisie and from the millions of people sent to gulag camps under Stalin, had long embodied the mystery around Soviet and then Russian gold policy.
In one of the few residual areas of secrecy in Russian gold policy, it still does not disclose its volumes of gold jewelry from prison camp inmates and so-called trophy gold taken from Eastern European nations after World War II.
* * *
Join GATA here:
Gold Rush 2011
GATA's London Conference
Thursday-Saturday, August 4-6, 2011
Savoy Hotel, London, England
http://www.gatagoldrush.com
The Silver Summit
Thursday-Friday, October 20-21, 2011
Davenport Hotel, Spokane, Washington
http://cambridgehouse.com/conference-details/the-silver-summit-2011/48
Support GATA by purchasing gold and silver commemorative coins:
https://www.amsterdamgold.eu/gata/index.asp?BiD=12
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Lewis E. Lehrman on How to Solve the U.S. Debt Problem
Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.
Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.
Lehrman says: "Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."
To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:
http://www.thegoldstandardnow.org/gata
