Russia Expands Precious Metals Strategy, Looking Beyond Gold

(Kitco News) - Since 2021, central banks have bought an unprecedented amount of gold, significantly contributing to this year's rally to consecutive all-time highs. The question now is whether one central bank can have the same effect on other precious metals.

According to news reports published last week, the Russian government is considering spending 51 billion rubles ($535.5 million) over the next three years to replenish its precious metals reserves.

The reports stem from a line item in the government’s Draft Federal Budget, published on Sept 30. While gold has been an important asset in foreign reserves, the proposal indicates that the Russian government is looking to expand its holdings to include silver and platinum group metals.

"The formation of a reserve of refined precious metals as part of the State Fund of Russia will help ensure a balanced federal budget and stable economic development, as well as meet the industrial needs of the Russian Federation in the event of an emergency," the Ministry of Finance was quoted in an article by Interfax, translated to English from Russian.

The draft budget did not include details regarding a potential purchasing program; however, some analysts suggest that silver’s inclusion in foreign reserves could generate new investor interest, reestablishing it as an official monetary metal.

Central banks stopped accumulating silver in the mid-1850s, and the world moved off the silver standard by the early 1870s.

Some analysts point out that while silver remains an attractive monetary asset among retail investors, nations like Russia may be more interested in maintaining a strategic supply of the precious metal due to its industrial usage.

This year, there has been a strong push from producers to include silver on the U.S. and Canadian governments’ lists of critical metals.

Silver is a crucial precious metal in the alternative energy sector. According to the Silver Institute, industrial consumption of silver is expected to rise by 9% to 710.9 million ounces this year. The silver market is anticipated to experience its second-highest supply deficit on record, driven by demand from the solar sector, with silver demand for photovoltaic (PV) solar panels expected to increase by 20% to 232 million ounces.

Willem Middelkoop, founder of Commodity Discovery Fund, was the first to highlight the report on social media; he said that while 60% of silver demand is from industrial applications, investors shouldn’t completely dismiss silver’s role as a monetary asset.

“Russia will also be aware silver is manipulated through the COMEX futures and I wouldn’t be surprised their is a monetary aspect as well (putting pressure on the paper silver system),” he said in a comment to Kitco News.

Some analysts note that Russia’s involvement in palladium is unsurprising, as the nation is a major PGM producer. Last year, Russia produced 28% of the world’s platinum; however, its exports of palladium, platinum, and rhodium have been significantly impacted due to strict economic sanctions imposed by Western nations following its invasion of Ukraine in 2021.

Analysts suggest that, along with building a strategic stockpile, purchasing domestic PGM production will provide critical support for the mining industry. Russia had a stockpile of PGMs but sold it off in 2012.

The new strategic precious metals reserves align with Russia’s broader economic outlook. Last month, Russian President Vladimir Putin stated that Moscow should consider limiting exports of critical metals, including uranium, titanium, and nickel, further underscoring the country’s focus on controlling key resources.

Originally sourced from Kitco News