Andrey Lemeshko and Yuliya Fedorinova — Crashing Ruble Means Russia Has Cheapest Costs for Gold

What’s more, the country’s central bank is buying up gold from domestic companies as efforts to curb the economic crisis decrease its foreign currency reserves.… 

“By boosting gold purchases, the central bank reacted to sanctions,” Orlova said by telephone. “The regulator just wanted to diversify its international reserves basket away from dollars and euros as relations with the U.S. and Europe turned into a crisis.”

The Russian central bank buys gold from domestic producers through the commercial banks, increasing bank reserves, and can sell gold for USD or EUR as needed in lieu of holding foreign reserves. This reduces Russia's need to obtain foreign currency to meet balance of payments, for example, or to support the fx rate.

The bank spent about $88 billion last year in an effort to prop up the ruble. At the same time, its gold hoard increased to 38.8 million ounces at the end of 2014, the most in at least two decades, according to International Monetary Fund data. That’s valued at almost $50 billion at current prices.

With production costs declining and the market price of gold increasing, gold is the new oil for Russia.

Bloomberg Business
Crashing Ruble Means Russia Has Cheapest Costs for Gold
Andrey Lemeshko and Yuliya Fedorinova