Mooted Russian gold sales in support of local companies and budget

The Russian government this week announced it was thinking of selling 25 tons of gold from its reserves. But while prices for bullion are at record highs, is it the right time to be selling?

As gold prices have hit a record high in recent days, it could be there's no better time to sell gold. Yet, with the dollar weakening, many countries are moving in the opposite direction according to Marat Gabitov, Mining and Metals Analyst at Unicredit, building up their reserves, while slowly moving away from volatile currency holdings.

“Most governments are now buying gold, especially China and other developing countries. Now there are a lot of worries around the future of dollar, and gold is apparently a hard asset which will help preserve international assets of Russia.”

However, Chris Weafer, Chief Strategist at Uralsib believes that the Finance Ministry’s decision to sell gold is not primarily meant to help ease the current budget deficit, but rather to generate new cash to support local industries.

“One explanation is they are simply looking to raise money from selling some gold to do that – the more likely reason though is that the agency responsible for gold holdings, for buying precious metals has been more actively engaged in supporting another state company – Alrosa – which is the world’s second largest diamond producer and they’ve been buying diamonds from that company to support the company while the international market is weak.”

Deputy Finance Minister Dmitry Pankin recently announced that Russia would be issuing $17.8 billion worth of Eurobonds to help cover the budget deficit. Supporting local industries may be the reason for the sale – but ultimately it's unclear where this extra revenue is meant to go.

However, analysts agree, if the government goes through with the sale, it will not be a trend for the future and it will soon look to replenish its gold reserves.