Why Russia buying so much gold?

Why Russia buying so much gold?

Russia's central bank purchased 92.2 tons of gold in the third quarter of this year. It was the record amount in this quarter, according to the World Gold Council report. 

The World Gold Council has also found that global spending by central banks on gold has reached the highest level since the fourth quarter of 2015. In the third quarter of this year, central banks bought over 148 metric tons of gold, marking a 22% increase on the same period last year.

Other big buyers except Russia are Turkey, Kazakhstan, India, Poland, and Hungary. Based on a current price of $1,223 per troy ounce, these purchases totaled $5.82 billion.

The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, speaking with Vestnik Kavkaza, noted that by doing this, the Russian Central Bank transfers the money after the release of U.S. assets. "It’s just the conversion of money left after the sale of U.S. government bonds. Apparently, this is not a purely financial decision, but some preparation for possible exacerbations of geopolitical risks," he said.

The economist noted that gold has its own cycles, not always being a high-return asset. "This year, gold has shown good returns and is one of the most profitable assets now - but it is very cyclical and depends on concerns about a future recession. I think that the global recession will not be soon, not before 2020," Alexander Abramov warned.

The former deputy chairman of the Russian Central bank, head of the finance, monetary circulation and credit department at RANEPA, Alexander Khandruev, explained a surge in gold purchases by three factors. "We are global leaders in gold mining, but there is no sale of this product. Earlier, the Ministry of Finance bought gold to ensure sales, and now, by agreement with the Ministry of Finance, the Central Bank buys it, solving three problems at the same time. The first, as I said, is sales of products. The second is an increase in international reserves. The third is to ensure the issue of money for these purchases, that is, an increase in the money supply and an expansion in the money supply," he listed.

The former deputy chairman of the Russian Central bank added that gold has both advantages and disadvantages as an asset. "This is an absolute asset, which is good. Another thing is that storing gold is costly, and it does not have a constant return. And yet, gold is always in demand all over the world," Alexander Khandruyev concluded.

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