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Why China and Russia are buying so much gold
Material posted: Publication date: 14-08-2016
The addition of gold to the state reserves protects Beijing and Moscow from the dominance of the dollar.

Good gold news for enthusiasts is that China and Russia, manufacturers of No. 1 and No. 3 in the world catch up with major industrial countries reserves of gold bullion to its national reserves.

The bad news is that, while maintaining unchanged the existing monthly volume of purchases of gold, China and Russia — No. 6 and No. 7 in the world rankings of global gold reserves — it will take about six years to catch up with the countries occupying fourth and fifth position, that is, with France and Italy. Beijing and Moscow are increasing their gold reserves for a number of reasons, ranging from concern, depending on the dollar — particularly acute is manifested in the case of Russia due to the imposed at the initiative of the United States sanctions over the occupation of the Crimea, — the discontent about the low or negative returns from savings in European currencies, especially in euros.

China, apparently, spends more strategic campaign to counter the dollar, which was embodied in the fact that after years of efforts, the yuan has been included in the basket of currencies that constitute the SDR (special drawing right) of the International monetary Fund (IMF). This official unit, located in the heart of the world of money, will be extended from October 1, will include the Chinese currency that is likely to be a harbinger of efforts by the Chinese authorities aimed at strengthening of special drawing rights — today is an artificial unit that is not traded on private markets — as a multilateral reserve currency (multilateral reserve currency).

Last year, China lifted part of the veil over their gold reserves, thus violating a six-year silence and reported that its reserves for June 2015 amounted to 1658 tons, whereas the previous called number was 1054 tons. Beijing has also entered the market valuation of gold, and its reserves, according to the latest data, are estimated to be 70.5 billion dollars, although this amounts to only 2.1% of the international reserves of China (in the major industrial countries, the proportion of the gold ranges from 60% to 70%). The total amount of gold China is considered to be much greater, since this metal is of local production in the internal management reports figures separately from the international gold reserves assigned to state reserves in the country.

The largest state owner of gold is the United States, reserves of 8134 tons — more than four times higher than in China (1808 tons) and more than five times the performance of Russia (1499 tons). The United States followed by Germany (3380 tons), the international monetary Fund (2814 tons), Italy (2452 tons) and France (2 436 tonnes).

According to the IMF, which on a monthly basis collects data on the value of gold reserves and reports them with a delay of two months, China bought about 11 tons of gold in the period from January to April 2016, but in may, the number of gold bars has not changed. If China really wants to challenge American monetary dominance, then Beijing is likely in the coming years will be to take more impressive steps to reduce the gap with the largest holders of gold reserves, and it will do this either using the direction of the greater quantity produced under the control of the state of gold in its reserves, either through major purchases of gold from the international gold reserves, private or public.

However, while the policy diligent monthly acquisitions will probably continue, which will allow Beijing to gradually benefit from rising gold prices, without resorting to this situation to any extensions of random purchases.

In comparison with China, Russia has demonstrated higher rates of monthly purchases of gold in the period from January to June 2016, and, according to the IMF, Moscow buys in a month for 14 tons of the precious metal. But the reserves of Russia for 300 tons less than China's reserves, so it still takes six years to close the gap with France and Italy.

Rekindled China's interest in gold demonstrates the Chinese silk road Fund — a multibillion-dollar investment Fund, you expect the Eurasian trade and transport links. There were reports that his representatives are discussing with the Corporation China National Gold Group joint bid for the purchase at auction of the Vasilkovsky gold quarry in Kazakhstan owned by Glencore.

In addition, the Chinese state Bank ICBC Standard Bank, considered the largest in the world in assets, has agreed to acquire the business of storing metals at Barclays Bank’, including its modern store in London, which testifies to the desire of China to become not only a trader of gold, but a third - party Depository for other public and private owners.

According to statistics provided by the World Gold Council and taken from other sources, including IMF total gold reserves last year increased by 702,5 tons (in 2014, they increased by 176,7 tons), and in December the growth made 32,733 tons, which is the highest rate since 2002, when Central banks, especially from developed countries were involved in the overall process of the sale. A significant part of the increase is due to held in China update statistics on the gold coating.

In the report for the 2016 organization of the Official Monetary and Financial Institutions Forum, published this summer, entitled Global public investor (Global Public Investor) and contain a thorough overview of gold reserves, says: "Gold is becoming more attractive as an alternative reserve currencies as the Euro, the yen and the Swiss franc weakened against the dollar in 2015, while the emerging economies are also interested in diversifying its reserves and reduce dependence on us assets.

Sovereign debt with negative yields in the amount of about $ 10 trillion in June 2016, increase the challenges for investors and also the risks of negative processes in the markets in the event of a change in policy interest rates. Deflationary pressures felt by many developed and developing economies, increases the importance of gold as a storage of value and a hedge against financial market volatility".

David Marsh


Tags: Russia , China , gold

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