Russia continues to buy gold

Some recent articles in the media gave the impression that the central bank of Russia was selling gold.  But what was the real story?  Is Russia selling its gold from its foreign exchange reserves? If so, it is flying in the face of its government and the policy of its central bank.
Gold-producing companies sell their gold after it has been refined at reputable refineries in their country. The government receives a report of the amount sold and a report of the amount of dollars or currency for which it was sold and ensures that the foreign currency returns to the country.  This is a perfectly normal way for exporters to export any product.  Mining companies all over the world follow the same procedure.  Would it be correct therefore to say that the country is selling its gold?  Certainly this is not what the gold market understands by “Russia is selling its gold”.  No, this is local Russian, gold mining companies exporting the gold they have produced.
When a ‘country’ buys or sells its gold it refers to the country’s central bank buying or selling gold for the nation’s reserves.  Where this happens, gold is often bought from local producers.  The central bank will simply agree with the local miner to pay him local currency for his gold at market-related prices.  In all cases where miners export their gold, they are paid in local currency, once the proceeds of the sale of the gold are repatriated.  But in the case of buying local production, no foreign exchange is involved, but the central bank pays the miners from its own resources.
In some cases the central bank of the nation buys only a small amount direct from local miners.  In other cases the central bank may buy the entire local production and in the most extreme of cases the central bank may buy the entire local production plus purchase from the physical market in London, usually at the Fixes.  The ultimate way to buy gold is to buy all local production, buy more through London and then to encourage one’s own citizens to buy gold from importers, such as China.  In time of stress, the government will be able to take its own reserves and its citizen’s gold from them.
When he was President, Vladimir Putin instructed that Russia hold 10% of its reserves in gold.  Since then the Russian central bank has been buying gold from local production.  With Russia producing around 203 tonnes a year from its mines, last year’s purchases amounted to 144.3 tonnes.  What could be a possibility is that it is buying its gold from only a select number of local mines, as the gold becomes available, or it is exporting all its locally produced gold and buying gold for its reserves from the London market. So far the gold content of Russia’s reserves is about 7.8% -up from 5.3% in January. The statement from its central bank reads, “The Bank of Russia is not committed to buying any particular amount of gold. Nor is there any official target amount of gold purchases. The bank buys gold at a market price, and its buying intentions completely depend on the market conditions.”
How’s that for inscrutability? Even an eventual target of 10% of reserves would allow the central bank sufficient leeway to say there is no defined amount that they should buy. An earlier statement from the Russian government/central bank sources stated that, “Russia intended to buy at least 100 tonnes a year for its reserves.”
Central banks have and will always be sensitive to declaring the exact state of its gold holdings and gold policies. Even Greece’s 111 tonnes of gold is not up for grabs by the creditors of Greece, but there is a deafening silence over Greece’s gold, despite its overwhelming debt. Governments generally cannot interfere with the independence of their central banks. It is the central bank that decides the gold policy of reserves. 

(A longer version of this report, written by Julian Phillips, was posted on Mineweb.