Russia’s Positive Outlook on Gold in 2019

Last updated:

Gold rates are currently set at $1,273 per ounce, skyrocketing after the US Federal Reserve announced interest rate hikes on December 19, going from 2.25% to 2.50%. The markets will be on the lookout for further changes to global monetary policies in 2018. Much to the surprise of the investors, the Federal Reserve has reduced its rate hike expectations for the next year, going from three to two more hikes in the year 2019.

Meanwhile Russian mining companies have been given the green signal by Venezuelan authorities to set up shop in the country, confirms Vladimir Zemsky – who is Russia’s Ambassador to Venezuela – in an interview with media personnel.

“As for Russia’s participation in gold mining or other mining projects, Venezuela has made a wide range of interesting proposals that are currently under consideration by interested Russian operators,” says the ambassador.

Russia’s biggest gold trader, VTB Capital, cut back on gold exports this year because of the high demand from the Russian Central Bank. However, this should come as no surprise because gold rates are increasing amid geopolitical instability and slow economic growth, prompting the Russian Central Bank to increase purchases for gold and other foreign exchange reserves.

Investors consider gold to be a safe haven asset in times of economic turmoil. The Head of Global Commodities at VTB Capital, Atanas Djumaliev said in an interview to Reuters that the company’s biggest client was the Central Bank because of its efforts to increase its gold reserves.

There is a low demand for gold in China where, according to Atanas, their company sales totaled around 11 tonnes in 2018. Russia has stayed on top of market trends and increased its gold reserves by nearly 7 percent this year. Its gold and foreign reserves are set to reach $464 billion according to Putin.

Russia’s foreign assets include foreign currencies, Special Drawing Right (SDR) assets, and liquid foreign assets, all of which are controlled directly by the Russian government and its central bank. Last year’s foreign exchange reserves had grown by $55 billion, setting the country on a course to diversify its portfolio, in particular, increasing its share of gold assets.

According to Russia’s President, Mr. Putin, the country has seen an economic growth of 1.7 percent, while the US looks toward an economic inflation.

Several market forces have weakened the US dollar in comparison to other fiat currencies such as the Japanese Yen and Francs. These include a partial US governmental shutdown, increased interest rates, economic tussle with China, and trade sanctions due to Russia.

Financial analysts are hoping for the Fed to put a stop to their monetary tightening cycle by the second half of 2019. This will be in stark contrast to other major central banks around the world that will be tightening their monetary policies, including the European Central Bank (ECB).

The ECB could begin their hike as soon as fall 2019, despite worries over economic slowdowns in the EU in the next couple of years, even if it comes at the risk of the eurozone economy growing by 1.7% down from September’s 1.8%.