Ukraine Cuts Gold Reserve to Nine-Year Low as Russia Buys

Ukraine reduced gold reserves for a second month to the lowest since August 2005 as Russia bought bullion for an eighth month to take its holdings to the highest in at least two decades, according to the International Monetary Fund.

Ukraine’s holdings fell to 23.6 metric tons in November from 26.1 tons in October, data on the IMF’s website showed. Reserves in Russia climbed to about 1,187.5 tons in November from 1,168.7 tons a month earlier, according to the data.

Holdings by Ukraine are shrinking as fighting with separatists in the east of the country slows the economy and weakens the hryvnia. The country is relying on a $17 billion loan from the IMF to stay afloat and stave off a default. Foreign reserves are at the lowest in more than a decade amid the deepest recession since 2009. Bullion holdings have dropped 45 percent from a record 42.9 tons in April, IMF data show.

The country’s “financial situation has been under pressure,” Steven Dooley, a currency strategist for the Asia Pacific region at Western Union Business Solutions, said by phone from Melbourne. “Its currency has been under pressure as well. Ukraine is definitely a small player. We really haven’t seen any large impact” on the gold market, he said.

Bullion for immediate delivery has declined 1.7 percent this year to $1,181.75 an ounce after slumping 28 percent in 2013 as investors reduced holdings in exchange-traded products, the dollar strengthened and the U.S. economy recovered.

Peace Talks

Peace talks aimed at resolving the crisis will resume in Belarus on Dec. 24 and Dec. 26, according to Ukrainian President Petro Poroshenko. They follow a two-week truce that tempered the bloodshed in a conflict that has killed more than 4,700 people since April. The separatists say they want to join Russia.

Russia took advantage of lower prices to increase its gold holdings after tapping its reserves to stem the ruble’s decline before the currency crisis escalated this month. An emergency interest-rate increase failed to reverse the ruble plunge, stoking speculation that the monetary authority may sell gold to secure hard currency.

The country has tripled gold reserves since 2005 and is holding the most since at least 1993, IMF data show. The precious metal accounts for about 10 percent of Russia’s total reserves, according to the London-based World Gold Council.

Central banks globally are adding gold to reserves after reducing holdings for about two decades from the late 1980s. Worldwide purchases will be 400 tons to 500 tons this year, the Council estimates.

Kazakhstan increased bullion reserves to 187.6 tons in November from 185.9 tons in October, while Mauritius and Turkey also bought gold, according to the IMF. Mexico cut its holdings for a fifth month, IMF data show.

Source: Bloomberg