Petrodollar Shock: Russia Could Invert Part Of Its National Wealth Fund In Gold

In the past two years Russia has been quite explicit in its shifting preference between fiat, in the form of the world's reserve currency, US Dollars and hard assets, i.e., gold: after liquidating almost all of its Treasury holdings in mid 2018, roughly around the time relations between the US and Russia hit rock bottom and started digging, Russian gold holdings continued to climb and just a few months back rose to a record, more than doubling in the past 4 years.

It now appears that the recent gold-buying spree wasn't enough, because according to Russia's Finance Minister Anton Siluanov, Russia is now also considering investing part of its National Wealth Fund in gold, adding that it is Russia's view that investment in the precious metal as more sustainable in the long-term than in financial assets.

“There is a discussion on whether to invest the fund’s money in gold and precious metals. There are a lot of supporters and opponents,” Siluanov said.

While Russia has traditionally been one of the world’s largest gold producers, its central bank has been the main buyer of its metal in recent years, partly as a result of Western sanctions imposed on Moscow in 2014, which forced the central bank was reducing the share of U.S. dollar assets in its reserves.

So is Russia about to double down and in addition to converting its forex reserves into gold, will start buying the yellow metal for its sovereign wealth fund too? It appears so: speaking to reporters last Tuesday, Siluanov said that the finance ministry proposes that the National Wealth Fund’s new investment structure would mirror the foreign exchanges reserves structure of the central bank and excludes gold.As of December 1, the central bank’s gold reserves stood at 72.7 million troy ounces, worth approximately $108 billion.

As a reminder, the Russian National Wealth Fund accumulates revenues from oil exports and was initially designed to support the pension system. It was worth $124 billion as of Dec. 1. It is, therefore, a key cog in the petrodollar mechanism. This means that a key player in the global petrodollar recycling pathway will instead convert its revenues from sales of oil not into dollars, but directly into gold, bypassing the current reserve currency.

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