Russia's international reserves exceeded $623 billion, reaching a new historical high. Izvestia found out whether this volume is sufficient and why there are more and more gold bars in it.
In a state of weakness: what will happen to the ruble by the end of the year
There are no great hopes for the strengthening of the undervalued Russian currency in the next three months
Absolute record
According to the Bank of Russia, in October the country's international reserves increased by $10.115 billion (by 1.6%) and reached a record $624.237 billion. The value of monetary gold in reserves in October increased by $4.201 billion, or 3.3%, and as of November 1 amounted to $132.859 billion. This result was caused by transactions for the purchase of foreign currency, as well as an increase in market prices for gold. The price of gold is currently around $1,820 per troy ounce.
International reserves are highly liquid foreign assets at the disposal of the Bank of Russia. They are needed to finance balance of payments deficits, influence the exchange rate through interventions, maintain confidence in a country's currency and economy, and as a basis for foreign borrowing. Gold and foreign exchange reserves consist primarily of assets in foreign currency and monetary gold. Also included in the Russian reserves are special drawing rights, a reserve means of payment issued by the International Monetary Fund.
Golden mine
Photo: IZVESTIA/Pavel Bednyakov
Their accumulation was facilitated by the budget rule: all oil and gas revenues exceeding the budgeted base oil price (in 2021, the cut-off bar is at $43.3 per barrel) were sent to the treasury. As the Ministry of Finance announced in early November, the volume of purchases of currency and gold under the budget rule in the period from November 9 to December 6, 2021 will amount to a record 518.2 billion rubles this year.
In 2014, the Central Bank carried out currency interventions to support the ruble and save the economy from the consequences of the crisis. As a result, reserves decreased by 25%. But from the beginning of 2015, reserves began to recover - the volume of reserves has since grown by $235 billion.
The global “golden reset” is set to begin on June 28
The Bank of Russia is playing giveaway with the West, selling gold abroad at a time when its value should begin to rise sharply. At the same time, the country does not experience a shortage of paper dollars, which are doomed to become cheaper.
Major decisions in the world of finance are usually prepared and made quietly, sometimes in an atmosphere of complete secrecy. This fully applies to the plans of the Bank for International Settlements (BIS) in Basel, as well as financial regulators of leading Western countries to introduce new rules for bank operations with gold. Such rules have been prepared over a number of years within the framework of Basel III (a document of the Basel Committee on Banking Supervision, containing methodological recommendations in the field of banking regulation and approved in 2010-2011).
The fiction of “paper gold” and the “bubbles” inflated by it
After the decision to demonetize gold, adopted at the Jamaica Conference in 1976, this precious metal was not completely expelled from the world of banks and money, but was there in a “Cinderella” position. The “queen” was the American dollar. For 45 years, the “queen” withered and completely weakened. Look, not today or tomorrow he will die. But “Cinderella” has blossomed and can take her place. The past 45 years have been dramatic. The “Queen” and her entourage tried to kill “Cinderella” countless times, but all these attempts were frustrated.
There were many ways of “attempts” on “Cinderella”. One of them, which has not yet been prohibited, is the creation of “paper gold” and the frantic development of the market for such “paper gold”. I think that in the very near future such virtual gold, if it is not completely prohibited, will be very limited in use. And this could happen on June 28 of this year. As agreed by the BIS and EU financial regulators, new rules for accounting and working with gold – both “paper” and physical – will be introduced from the end of this month.
What is “paper gold”? These are various financial instruments “tied” to gold, primarily its price. These can be futures and options, which are commonly called “derivatives”. Futures and options “linked” to gold have been known for a long time. But after the Jamaica Conference, derivative financial instruments turned from a means of hedging risks related to the supply of real goods into gambling instruments. The rapid development of the gold futures and options market began, which were actually fictitious contracts and very rarely resulted in the delivery of physical gold. For market players, it was a gambling business, and this business was actively supported by those who were interested in the strengthening of the US dollar. After all, the cheaper gold was, the more confident the American dollar felt. The precious metal and the US Federal Reserve's printing press were bitter rivals. “Paper gold” created the illusion of a huge increase in the supply of gold. And this brought down the price of physical gold, which is what the “masters of money” (the main shareholders of the US Federal Reserve) required.
The paper-dollar standard gave rise to rapid growth of financial markets, the “printing press” of the US Federal Reserve pumped dollars into “bubbles” in the financial and commodity markets. And against the backdrop of these “bubbles” and rising prices for many commodities, the price of gold was strangely at the “plinth level”. Work to suppress the price of gold was carried out by the “masters of money” and their entourage in many directions. It is not even possible to describe all directions in telegraphic language. But one of the main ones was pumping up the markets with “paper gold.”
The world's largest gold trading platform is located in the English capital. The London Bullion Market Association (LBMA) operates there. Gold trades here at an average of $20 billion per day, or more than $5 trillion per year. Almost all trade comes down to the purchase and sale of “paper gold”. Experts estimate that only five percent of contracts on the London market result in the delivery of physical gold. The rest are fictitious transactions for the sake of winning a bet: who will guess the price of the yellow metal?
The world's second largest trading platform for precious metals is the New York COMEX exchange. There, it is estimated that only 1 percent of transactions result in the delivery of physical gold.
There is gold and "gold"
The main players in the paper gold market are banks. The bank can also work with physical gold. Almost all of the physical gold that banks deal with belongs to clients. This gold is not reflected in the bank's balance sheet (an off-balance sheet asset). This gold is clearly identifiable (ingots of a certain standard, numbered), stored in specially equipped premises. Such gold is called “distributed”.
However, unidentified gold predominates, it is also “undistributed”. A bank may have assets and liabilities (liabilities) in the form of unallocated gold, expressed in ounces or other physical units, but tied to the price of the yellow metal at a particular point in time. This “unallocated gold” is reflected in the bank’s balance sheet. The existing rules for accounting for “undistributed gold” allow banks to accumulate a very large number of contracts, but if a banking crisis occurs or if market prices for physical gold sharply fluctuate, such banks may lose stability, and there are risks of bankruptcy. I will not immerse the reader in the details of the existing rules for banks working with gold, but I will note that they push them to ensure that banks find themselves at the “red line” or even beyond it.
In 2021, the Bank for International Settlements has already thoroughly developed new rules for working with gold. They provided, on the one hand, for increasing the status of physical gold (transferring it to the category of “first-level capital”). On the other hand, the conditions for working with “unallocated gold” (read: “paper gold”) were tightened. Very strict ratios were proposed to cover the bank's obligations for “undistributed gold”. This meant: if you want to work with “paper gold”, please do so. Only these operations require substantial amounts of equity capital (share capital, authorized capital) and additional reserves. In general, the central banks of many countries around the world have already understood which way the wind will begin to blow in the near future. And they began to act ahead of time, turning into serious net buyers of the yellow metal, not “paper”, of course, but physical.
Not a pardon, but a reprieve
In February 2021, there was a rumor that the BIS would introduce new rules for working with gold on March 29 of that year. Then catchy headlines appeared in the media like: “Gold is returning to the world of money again.” They said that gold would receive the status of capital of the first (highest) level. With all the ensuing consequences for gold itself on the world market and for the US dollar. But nothing happened either on the specified day or later. One version of this story is that the BIS actually planned to introduce new rules, but the “masters of the money” managed to put pressure on the BIS at the last moment, and it, in turn, pulled the brakes. Last year, due to the “COVID-19 pandemic,” the BIS imposed a moratorium on any action to tighten the rules of the new Basel.
But this year, already around February, there were rumors that new rules on gold within the framework of Basel III would nevertheless be introduced. And they even named the exact date – June 28, 2021. Today these are no longer rumors. European Union banks admit that they have received a directive from financial regulators on new gold rules, which will actually start at the end of this month. There is even more noise about the new rules on the islands of Foggy Albion. The London Bullion Market Association (LBMA), which is known to include many City of London banks, is panicking. She is lobbying the BIS, the Bank of England, and the British Prudential Regulation Authority to prevent the introduction of new rules, or at least delay their introduction. As of today, financial regulators in England say that the new rules will come into effect on January 1 next year.
There are comments in the Western media about the BIS innovation, according to which the new rules will deal a fatal blow to the US dollar. They (the new rules) will not only reduce the volume of transactions with “paper gold”, they will destroy the market for such fictitious gold. Consequently, the brake that held back the rise in prices for physical metal will disappear. And if prices for the yellow metal begin to rise, then the dollar will be ruined. However, some commentators believe that the “masters of the money” will again be able to convince the BIS at the last moment that the introduction of new rules should be postponed. No, not cancel, but postpone. Because even they already understand that the dollar is doomed. But “before death, as they say, you can’t breathe enough.” Why do they need a delay? They want to prepare for the transition to a new world financial order, where there will no longer be a “queen” called the “US dollar”. How are they preparing for the new order? Yes, it’s very simple - buying yellow metal at the lowest possible price.
Russians have their own “pride”
Please note: there are good statistics with which we can identify the main sellers of physical gold. Last year, the Chairman of the Bank of Russia, Elvira Nabiullina, announced that the Central Bank of Russia would stop purchasing gold mined in the country from April 1, 2021. And domestic miners of the precious metal were forced to ship gold abroad. At the end of last year, as reported by the Federal Customs Service (FCS), 320 tons were exported - the annual volume of production of the precious metal. Almost all the metal went to London. Russia has become one of the leading gold exporters.
But statistics are silent about buyers of gold in general and Russian gold in particular. Buyers prefer not to shine. They are, so to speak, “changing their shoes.” Yesterday they were betting on the US dollar, and today they are frantically converting dollars into still cheap gold. There is a catastrophic shortage of physical gold on the world market. Everyone buys gold: England, Switzerland, Turkey, India, and China. By the way, China, which ranks first in the world in gold production (about 400 tons per year), does not have enough precious metal; it imports at least 1000 tons annually. One can imagine what a generous “gift” Nabiullina gave last year to unknown buyers of Russian gold. Indeed, at the time when the decision was made to stop gold purchases by the Bank of Russia, it was already clear that in the near future the BIS would introduce new rules for working with gold for banks. Nabiullina cannot but know this. After all, the Bank of Russia is a member of the BIS. And she, as the head of the Bank of Russia, regularly visits the BIS headquarters in Basel. Maybe that's where her true bosses are. And by introducing a moratorium on the purchase of gold, she is following their instructions?
Or you can look at the decision of the head of the Bank of Russia to stop purchasing gold from the other side: what gigantic damage was caused to Russia and its citizens by such a decision. From the point of view of national interests, it should be called a crime.
P. _ S. _ I regularly follow the speeches of the famous Mexican billionaire Hugo Salinas Price. He has been working in the precious metals market for a long time and openly states that the price of gold and silver has been artificially suppressed in order to keep the US dollar afloat. On May 31, he published a publication called “June 28: Bank for International Settlements Caves In to Russia and China.”
In his article, he completely correctly assesses the consequences of the planned introduction of new gold rules by the BIS on June 28 of this year. True, his statement that the BIS is “surrendering to Russia and China” is a clear exaggeration. Neither Russia nor China, to my knowledge, exerted any pressure on the BIS. The decision of the BIS is dictated by the need to save all Western capitalism. You can sacrifice the US dollar for this. Moreover, he is already on his last legs. It is already useless to save him.
Apparently, Hugo Salinas Price wanted to say something else: Russia and China, as leading gold-mining countries, could become the main beneficiaries of the gold decision planned for the end of this month. And this is the absolute truth. I would really like to take advantage of the opportunities that open up. But for this we need to stop playing giveaway with the West.
Economic sustainability
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Last year, the volume of Russia's international reserves was less than $600.7 billion. The increase in the volume of Russia's international reserves to more than $618.2 billion is evidence of the country's foreign policy and economic stability. Experts consider their current level to be more than sufficient to protect against various shocks.
“An indicator of the sufficiency of gold and foreign exchange reserves is their ratio to GDP in dollars. If we proceed from the forecast of the Ministry of Economic Development for the Russian Federation's GDP for 2021 in the amount of 124.4 trillion, then the ratio of reserves to GDP in dollars will be about 35%. This is a more than sufficient level. In developed countries this figure is less than 10%, in China it is around 30%. For developing countries, which include Russia, this ratio is an indicator of financial stability and creditworthiness,” points out Tatyana Simonova, head of the investment consulting department of General Invest.
Golden mine
Photo: IZVESTIA/Konstantin Kokoshkin
And a little bit at a time: Russia’s external debt reached $471.4 billion
How critical is this for the country's economy?
International reserves have long covered the entire external debt of the Russian Federation amounting to $489.2 billion. Experts remind that under normal conditions such a ratio (when reserves completely cover borrowings) can be considered excessive. Debt financing helps the economy grow, and avoiding it can reduce the growth potential of the economy.
On the other hand, as KSP Capital analyst Mikhail Bespalov emphasizes, despite the fact that Russia has every opportunity to increase external borrowing, the advantages of a low debt burden are obvious: protection from geopolitical, sanctions risks, as well as from those associated with a decrease in prices for basic resources exported by the state.
