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Russia is adjusted on long-term isolation
Material posted: Publication date: 04-02-2015

The oil price and the ruble is in free fall, there is a threat of recession — the economic and financial situation in Russia escalates. But today, the Kremlin is accumulating record amount of gold. What's the plan behind that?

Anyone who wants to understand how the Russians operate in times of crisis, needs only look at data on gold purchases. The Kremlin in December, as in the previous eight months, increased their gold reserves. According to the International monetary Fund, the gold reserves of the Russian Central Bank increased by 19 tons and total 1206 tons.

Despite the crisis of the ruble, falling oil prices and declining foreign currency reserves, Moscow continues to be steadily built up gold reserves, and today it has the most significant resources since the collapse of the Soviet Union. This country in the past year by the number of noble metal even ahead of China, the second economy in the world and has the sixth largest holders of gold reserves.

Such purchases, from the economic point of view, appear surprising, since they do not correspond to the state of the economy. No rationally acting state in times of shrinking foreign exchange reserves and growing financial obligations will not invest in illiquid assets. Gold currently accounts for about 13% of the state gold and exchange currency reserve of Russia, which is estimated at 378 billion. In addition to gold, almost 290 billion dollars invested in difficult realization of bonds and special drawing rights of the International monetary Fund, and therefore such an attack on a noble metal is even more strange.

Buying gold as a reaction to the American dollar as a weapon

However, purchases of gold, apparently, quite fit into the political calculations. Moscow is trying to achieve independence from the West. In contrast to the dollar gold has no nationality. Here no government has the casting vote, and therefore gold are willing to use authoritarian rulers.

Moreover, Washington recently discovered the ability to use the dollar as a financial weapon. For example, banks, including those outside the United States, it was forbidden to conduct transactions with unwanted States. These measures are extremely effective, because no Bank can afford to violate the restrictions imposed by the U.S. administration.

According to observers, it is not only about being defensive, directed against a dollar policy of the United States. Most likely, the Kremlin is preparing for a long-term isolation and repeated attempts to take action in case a further deterioration of the political situation. "We do not see a possible solution to the conflict in Ukraine, said Vadim Khramov (Khramov Vadim), a strategist at Bank of America Merrill Lynch. Everything indicates the approach of some variant of the ice age.

The precious metal stocks have doubled

Last year Russia increased its gold reserves for a total of approximately 165 tons and many gold is not bought with any other state. Every third ton, purchased in 2014, Central banks that accounted for by Moscow. Within five years, Russia has doubled its stock of precious metal and also increased by almost 4% its share in global reserves of gold held by domestic banks. Even the 1990-ies the share of gold in the Moscow stores was less than 1%.

"Although Russia is among the traditional buyers of gold, such large purchases in the past year, draw attention to themselves and this explains, probably, the geopolitical situation," — assesses the Kremlin's actions Strachan Ross (Ross Strachan), the famous expert of the analytical company GFMS.

The purchase of gold contrasted with the economic situation in the country. The Russian economy is in free fall, the ruble last week lost 15% of its value, and the population seems to be losing confidence in the national currency. Last year, enterprises, households and banks transferred abroad about 152 billion dollars. Even the call of Vladimir Putin to the corporations and the oligarchs of the country to repatriate their overseas dollar-denominated assets nothing in the situation changed.

Russia's economy is sliding down

For the investment Bank Morgan Stanley it was also the reason to revise their economic expectations. American analysts believe that Russia will experience a severe recession. According to their forecasts, GDP growth in the current year will not be reduced by 1.7% and 5.6%. And regarding 2016, the experts of the capital market come from the reduction of the order of minus 2.5%. Until recently they thought possible small growth, which could reach 0.8%. The main argument of such gloomy predictions is, of course, a low oil price. "This year we expect that the average price will be $ 55 per barrel," notes Morgan Stanley analyst Alina Slyusarchuk (Alina Slyusarchuk).

Until recently experts assumed that a barrel of oil will cost $ 88. "Because in the medium term the oil price will not significantly increase, then the Russian economy is little hope for a rapid recovery, believes Slyusarchuk. — Unlike the 2009 crisis, the recession will last much longer. Besides increasing the probability of adoption of tougher Western sanctions."

Key interest rate slightly decreased

A frightening specter of recession, apparently, is felt in Russia as never before. For this reason, the Russian Central Bank on Friday lowered interest rates, which was unexpected for many observers. The head of the Central Bank Elvira Nabiullina has reduced it from 17% to 15%. The goal is to stimulate the economy.

Most recently, in December last year, the key rate was drastically increased from 10.5% to 17%. At that moment, the ruble plummeted suddenly, and therefore the Central Bank was forced urgently to save the national currency. But now Nabiullina made a choice in favor of the lesser of evils as a priority — due to fear of a strong recession, and trying to stimulate the economy.

Continuing its fall for the ruble, apparently, is perceived in Moscow as a minor problem. To some extent this is logical. Since Russia has recently been making a bet on gold as a currency crisis.

Original publication: Russland stellt sich auf eine lange ein Isolation


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