MOSCOW, July 3 (Reuters) - Russia’s central bank has been buying gold on the domestic market at less than the industry benchmark to encourage Russian producers to export more of the metal, the governor told Reuters.
Russia has overtaken China to become the world’s fifth largest official sector holder of gold, as Western sanctions drove buying by its central bank to record highs in 2018.
But the central bank added a discount on May 1 to its purchase price, which was previously based on the daily London Bullion Market Association (LBMA) gold price. Market players had expected purchases to continue at last year’s pace.
“We introduced discounts for the purchase of gold because we saw that vendors were selling gold mainly to the central bank,” Governor Elvira Nabiullina said in the interview, which was cleared for publication on Wednesday.
“The discount aligns domestic conditions with external ones and motivates gold producers to sell to export too,” she said.
The central bank has not previously offered any detailed explanation about why it had reduced its gold price.
Since the discount was added, the bank’s monthly gold purchases destined for reserves, have slowed. As of June 1, Russia’s gold reserves stood at 70.4 million troy ounces, up only 200,000 ounces since the start of May, according to central bank data.
“It wasn’t a special decision on our part to reduce gold purchases,” Nabiullina said, adding that, although gold was relatively volatile, increasing its gold reserves helped it diversify away from U.S. dollar holdings.
“We believe that in the current climate we need to have a more diversified structure,” Nabiullina said, adding that Russia’s reserves are currently far more diversified than in many other countries, where the U.S. dollar dominates.
The central bank has said it was diversifying state foreign currency reserves more than other countries because of the economic and political risks. Russia has been at loggerheads with the United States over a range of issues.
The central bank has also been increasing purchases of Chinese yuan, which the central bank chief said represented “a diversification away from risks, including geopolitical risks.”
Nabiullina denied reports the Russian central bank had taken some of Venezuela’s gold reserves to hold temporarily in Russia. (Reporting by Andrey Ostroukh and Elena Fabrichnaya; additional reporting by Gabrielle Tétrault-Farber; writing by Polina Ivanova and Polina Devitt; editing by Edmund Blair)