Russia And China Want Gold To Diversify Massive Foreign Exchange Reserves

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 |  Includes: FXI, GLD, RSX
by: Hard Assets Investor

By Sumit Roy

One of the biggest factors driving the bull market in gold over the past decade was consistent buying by central banks. After 21 straight years of selling, central banks in aggregate became net buyers for the first time in 2010. In 2012, they bought the most gold in 50 years.

It may be surprising to some that the most significant of these central bank buyers is Russia. The Bank of Russia has purchased almost 20 million troy ounces of gold over the past decade, most of that taking place since 2007. Russia now holds the eighth-largest gold reserves in the world, representing 9% of its total foreign exchange reserves. That, of course, leaves more room for gold buying by Russia should it choose to diversify its reserves even further.

Russia Gold Reserves

Russia Gold Holdings

Another big central bank buyer over the past several years has been China. The country, which does not regularly report on its holdings, also purchased close to 20 million troy ounces over the past decade. However, in China, gold holdings represent a mere 1.7% of its whopping $3.4 trillion of foreign exchange reserves, leaving ample room for diversification.

China Gold Reserves

China Gold Holdings

Importantly, the gold buying by Russia, China, and others adds a sense of legitimacy to the yellow metal's store-of-value characteristic. It's not merely "gold bugs" that have interest in the metal, but powerful national governments as well.