Russia Tries to Insulate Economy by Buying Gold, Selling U.S. Bonds

Russia has radically slashed its reserve of U.S. Treasury bonds, leaving the top-30 list of biggest lenders to the United States, instead buying gold in order to protect and insulate the country’s economy amid sanctions from the West.

Russian ownership of U.S. Treasury bonds dropped from $96.1 billion in March to an 11-year low of $14.9 billion in May, the latest U.S. Treasury figures show.

“Both political and economic reasons could be found here. The Central Bank may have thought that Russia-owned Treasuries could be frozen because of geopolitical tensions. The regulator announced in spring that it plans to diversify its reserves,” said Zhanna Kulakova, a financial consultant at TeleTrade, said in a statement for RT.

The analyst says the Russian central bank could re-invest the money from the offload into Chinese bonds and gold.

“Gold is a tangible asset that cannot be completely depreciated under any circumstances. In periods of global financial or political crises, gold will be much more useful than securities or cash,” Kulakova said noting that gold is also prone to price fluctuations from time to time.

Russia’s selling of its U.S. Treasury holdings has to have an impact on the dollar, Kulakova said.

“China, which is the world’s largest holder of Treasury bonds (about $1.2 trillion), can affect the dollar rate and the yield of U.S. bonds. If you sharply dump such a volume of securities on the market, then the dollar rate will be shaken, and the yield on treasure will soar,” she concluded.

Vladimir Rojankovski, an expert at the International Financial Center in Moscow, praises the move by the Russian Central Bank to diversify but warns that gold price could be manipulated on the market like oil.

“In the event of a global decline in the interest of large sovereign investors in U.S. Treasury bonds, I expect an increase in speculative activity in precious metals in order to artificially lower their market valuation,” Rojankovski said.