There are a lot of theories as to why central banks, and Russia in particular, are cutting down gold purchases, but in the case of Russia the reason is simply that they need cash, this according to Jeff Christian, managing partner of CPM Group.
“The Russian government is strapped for cash. It’s facing the pandemic that everybody else is facing, but it was slow to move on it so it’s got serious problems there. It still has sanctions, it doesn’t have a lot of foreign exchange coming in, it’s losing money on every barrel of oil that it sold in Russia,” Christian told Kitco News. It doesn’t have the money to buy gold.
Russia’s rivalry with Saudi Arabia on oil production has also put strains on the country’s energy sector, Christian said.
“Now the Saudis have started an oil price war with the Russians. Russian average oil price production costs are about $42 a barrel. The price of oil has been below $30 since the price war started, so Russia is losing money on every barrel it produces on average, and sells,” he said.
On gold’s supply, Christian noted that there is not a lack of gold inventory available, rather, the issue lies with a disruption to the supply chain caused by the shutdown of the aviation industry.
“The biggest thing that has shut down is the airlines. You ship gold by plane, and if you’re not flying planes between London and New York, you’re having transportation problems. The gold market is suffering from the same supply chain disruptions that every other industry is suffering from. There’s plenty of gold out there,” he said.
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