For gold, the move adds a modest but timely source of official-sector demand just after a September in which spot prices fell more than 6%. The ministry does not disclose how purchases are split between gold and foreign currency, which limits how much weight traders can put on it. The bigger point is the link to oil. Russia’s buying of gold and yuan now rises and falls with energy prices, so any easing of the Gulf supply shock that pulls crude lower would quickly shrink this channel of demand. For the rouble, larger state purchases of foreign assets are a headwind, all else being equal.
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Earlier:
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High oil prices are being recycled into gold and currency reserves in Moscow, with Russia’s purchases jumping fivefold in a month.
Summary:
- Russia’s Finance Ministry will allocate about 280 billion rubles to buying foreign currency and gold between 7 October and 6 November
- That is roughly five times September’s allocation of about 56 billion rubles, which itself was down sharply from about 136 billion in August
- Purchases are made under Russia’s fiscal rule, which channels oil and gas revenue above a $59 a barrel cut-off into the National Wealth Fund
- The jump reflects higher energy prices, with Brent trading around $100 amid Gulf supply disruption
- The ministry does not disclose the split between gold and currency purchases
Russia’s Finance Ministry will spend about 280 billion rubles buying foreign currency and gold over the coming month, roughly five times its September allocation, as high oil prices swell the country’s energy revenue.
The purchases will run from 7 October to 6 November under Russia’s fiscal rule. The rule directs oil and gas revenue above a set cut-off price of $59 a barrel into the National Wealth Fund, the country’s sovereign reserve, through purchases of foreign currency and gold. When energy revenue falls short of expectations, purchases are scaled back.
That is what happened in September. The ministry allocated only about 56 billion rubles, or around 2.5 billion a day, down from about 136 billion rubles in August. It cited extra oil and gas revenue of about 100 billion rubles for the month, offset by August energy receipts that came in 45 billion rubles below its projections.
The sharp increase for October reflects the rally in crude prices. With Brent trading around $100 a barrel amid disruption to Gulf supply, Russian oil is clearing the fiscal rule’s cut-off by a wide margin, generating a larger surplus to be set aside.
The operations are carried out by the Bank of Russia on the ministry’s behalf. In the second half of this year, the central bank has been offsetting part of the purchases with sales from reserves of about 0.6 billion rubles a day, which cut net buying in September to around 1.9 billion rubles a day. Even after that adjustment, October’s net purchases are set to be several times larger.
For the gold market, the timing is notable. Spot gold fell more than 6% in September, and a larger Russian buying programme adds a source of official-sector demand as prices try to stabilise. The ministry does not publish how its purchases are split between gold and currencies, so the direct impact on the gold market cannot be measured precisely.
The step-up also illustrates how the Gulf supply shock is feeding Russian state finances. Sanctions aimed at curbing Russia’s energy earnings have helped keep global prices elevated, and higher prices are now flowing straight into Moscow’s reserves.
This article was written by Eamonn Sheridan at investinglive.com.