Russian Central Bank increase purchases of gold

The Russian Central Bank increase purchases of gold this year, to absorb domestic production that Western sanctions make it difficult to sell abroad. The purchases of gold target and increase the liquidity of the foreign exchange reserves. Most of the gold produced in Russia are generally sold to local commercial banks, Sberbank and VTB, which can then resell it to the central bank or foreign bank.

This year the foreign banks refrain from purchasing Russian gold since Western powers imposed sanctions against the country because of the Ukrainian crisis. Therefore, the central bank had no choice but to take on domestic production, which can not be sold to foreign banks, two sources indicated. The central bank bought much of the metal that local commercial banks have available.

Although sanctions are not expressly prohibit the western Russian banks to buy gold, they are wary of any business done with their Russian counterparts. Central Bank of Russia significantly accelerate purchases of gold this year, according to the World Gold Council, adding nearly 115 tons to its reserves against 77.5 tons throughout 2013 and 75 tonnes in 2012. The Central banks around the world actively bought gold during the financial crisis in a bid to diversify its foreign exchange reserves, adding 1,800 tons for the six years to June 2014.

The Russian Central Bank was among the most active buyers in the past decade, its stock almost tripled since the end of since 2004 to 1,150 tons, making it the sixth largest holder of gold in the world among central banks. Earlier this month, the first Deputy Governor of the Bank Xenia Yudaeva said that the central bank can use gold reserves to finance imports, if necessary.