Russian central bank buys finance ministry's gold

By Nataliya Vasilyeva
Associated Press via Yahoo News
Monday, December 21, 2009

http://finance.yahoo.com/news/Russia-transfers-1-Bln-worth-apf-270369463...

MOSCOW -- Russia's Finance Ministry has sold 30 metric tons of gold to the country's central bank for $1 billion, an official said Monday, saying the cash will be use to help ease the crisis in the country's budget.

The cash slightly reduces Russia's deficit, which the Finance Ministry puts at around 7.3 percent of gross domestic product this year.

The deal marks the first large sale of gold from Russian coffers since the collapse of the Soviet Union. Russia is weathering its worst financial crisis in a decade.

A Finance Ministry spokesman said the deal was struck last week. The spokesman, who declined to be identified because he was unauthorized to comment on the deal, would not say what the central bank planned to do with the gold, but Finance Minister Alexei Kudrin said in October that Moscow was considering selling gold on world markets to cash in on high prices and further replenish the budget.

Bank representatives said they were unaware of the deal.

Analysts doubted that this could be a precursor for a market sale of gold.

"I don't think the central bank will be selling it anywhere, although it can dispose of its reserves as it pleases -- buy or sell," Alexei Morozov, metals analyst with UBS in Moscow, said.

The Finance Ministry is likely to take the proceeds directly from the gold sale and send the money to the budget, Merrill Lynch's chief economist in Russia, Yulia Tsyplyayeva, said.

The deal comes at a time when gold prices are reaching historic highs of over $1,100 an ounce.

Russia's gold and foreign currency reserves -- the world's third-largest -- stood at $443.7 billion as of Dec. 11, according to the central bank. The gold reserves stood at some 613 metric tons as of Dec. 1, worth $23 billion.

The Russian government -- also a major holder of U.S. dollars -- has spoken strongly in favor of diversifying its reserves, but has so far done little to follow through.

Tsyplyayeva said the central bank bought the gold as a safeguard against currency risks.

"The central bank's intention is that when there is an uncertainty on the currency markets, gold will have growth potential," she said. "The central bank has plenty of currency reserves. Why would it want to sell gold now?"

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