Reserves of Central Bank fall with the gold

24 May 2016

The international reserves of Bank of Russia for the last few months have shown steady growth and in many respects it was supported by the rise in the cost of the main precious metal - gold. According to the data for April, the Central Bank reserves were 47 million troy ounces of gold and its value as of May 1 was $ 60.506 billion. However, it should be noted that just in the last trading session of April, the gold set a local maximum price.  Since that time, gold prices fell almost by 5%.  Since the beginning of the year, the price for existing gold has increased by more than $ 12 billion. A significant increase was demonstrated and in reserves themselves. Obviously, the next report of the bank of Russia on international reserves will show their decrease as only for the first day of the gold correction, its price in the reserves of Central Bank decreased by approximately $ 1.5 billion. International reserves are highly liquid financial assets possessed by the Bank of Russia and the RF government. They are formed of assets in foreign currency, monetary gold, special drawing rights (unit of account used by the International Monetary Fund, IMF), reserve position in the IMF and other reserve assets. 

It is worth mentioning that in February this year, the Bank of Russia has become the largest buyer of gold among global central banks. 

However, there is a caveat. It is possible that the Central Bank is buying gold just from Russian producers and for rubles. This is done in order to replenish reserves and at the same time to support producers. Last year, for example, the Union of Gold Producers of Russia appealed to the Central Bank with a request to buy back almost the entire volume of metal mined in 2015. With regard to reserves, the Bank of Russia actively replenishes theь with gold for the past few years and proportion of metal in gold reserves currently stands for about 15%. Due to a sharp increase in the value of gold, this year the Central Bank was able to significantly increase reserves.

What is the reason of changes in the sentiment in the precious metals market? 

First of all, it should be noted that the correction should take place sooner or later as well as a formal pretext was publishing of reports from the last meeting of the Federal Reserve System. April the minutes of FRS meeting the month of June was mentioned 6 times in the context of monetary policy tightening that indicates increased intentions of the regulator to increase its key interest rate at the next meeting in June. In other words, the emphasis was on the fact that the market is underestimating the probability of increasing the key rate in the near future. After that, the dollar index began to grow and virtually all commodity assets came under pressure. 

Source: Vesti