The dollar loses importance, gold rises: is it (also) the fault of Russia? What is happening to the international financial market?
The Russian Central Bank has announced that it has ceased purchases of physical gold, thus putting an end to a trend that in the past five years has allowed Moscow to multiply its gold reserves, reaching up to $ 120 billion in value.
In addition to this, Business Insider (italian edition) recalls in an in-depth analysis, the Duma would be thinking of authorizing the transfers without restriction on the market but, probably, not with the intention of generating liquidity from the sale of assets that reach 7% of GDP, as instead it would be superficially imaginable. In fact, the magazine claims that the intention of the Duma would be political strategy, but why?
The dollar may lose its value as a safe haven asset
It is relatively simple. The USA 5-year CDS (credit default swap, one of the most reliable measures on a country’s default risk) rose steeply after the Federal Reserve’s choice to launch its new quantitative easing program and after seeing the US federal bank’s budget breaks through the $ 5 trillion mark.
In turn, in order to offset foreign investors’ outflow from US Treasuries, the Fed may be forced to print even more money in the medium term. This context could cause the dollar to lose, at least in part, its function as a safe haven, given the enormously increased supply.
For its part, Russia has every interest in facilitating this migration, in a context of falling interest in the dollar and its centrality in the financial markets. And it could do so by feeding an increasingly lively gold market.
Its strategic attitude is therefore clearer from this point of view. In a context in which the demand for physical gold is growing but the supply is in difficulty (due to the coronavirus pandemic, transportation is more difficult, some mines are closed), instead of accentuating purchases and reducing supply, Russia seems be willing to guarantee more, to make gold more central, and to reduce the role of the dollar in the international financial system