Russia to buy 280 billion rubles of gold, currency in October

For the gold market, the move provides a modest but timely source of official-sector demand right after September's spot-price decline of over 6%. Because the ministry does not disclose how purchases are split between gold and foreign currency, traders cannot fully gauge its impact. The larger significance is the link to oil. Russia's purchases of gold and yuan now fluctuate with energy prices. If the Gulf supply shock eases and crude falls, this demand channel would quickly shrink. For the rouble, bigger state purchases of foreign assets act as a headwind, other things being equal.

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Earlier:

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High oil prices are being converted into gold and currency reserves in Moscow, as Russia's purchases surge fivefold in a month.

Summary:

• This is about five times September's allocation of roughly 56 billion rubles, which had fallen sharply from about 136 billion rubles in August.
• The purchases occur under Russia's fiscal rule, which funnels oil and gas revenue exceeding a cut-off of $59 per barrel into the National Wealth Fund.
• The increase reflects higher energy prices: Brent is trading around $100 per barrel amid disruption to Gulf supply.
• The ministry does not reveal the division between gold and currency purchases.

Russia's Finance Ministry will spend about 280 billion rubles on foreign currency and gold over the next month, about five times its September allocation, as high oil prices boost energy revenue.

The purchases will take place from 7 October to 6 November under the fiscal rule. That rule channels oil and gas revenue above a $59 per barrel cut-off into the National Wealth Fund, Russia's sovereign reserve, via purchases of foreign currency and gold. Purchases are reduced when energy revenue misses expectations.

That was the case in September. The ministry allocated just around 56 billion rubles, or about 2.5 billion a day, down from roughly 136 billion rubles in August. It said extra oil and gas revenue for the month was about 100 billion rubles, offset by August energy receipts that were 45 billion rubles below projections.

The sharp increase in October reflects the crude price rally. With Brent around $100 per barrel due to Gulf supply disruption, Russian oil exceeds the fiscal rule's cut-off by a wide margin, creating a larger surplus to be set aside.

The Bank of Russia conducts the operations on behalf of the ministry. In the second half of this year, the central bank has been offsetting some purchases with daily reserve sales of about 0.6 billion rubles, reducing net buying in September to roughly 1.9 billion rubles a day. Even with that adjustment, net purchases in October are expected to be several times larger.

For gold, the timing stands out. Spot gold declined over 6% in September, and a larger Russian buying programme adds official-sector demand as prices attempt to stabilise. The ministry does not publish the split between gold and currencies, so the direct impact on the gold market cannot be precisely measured.

The increase also shows how the Gulf supply shock is boosting Russian state finances. Sanctions intended to curb Russia's energy earnings have helped keep global prices high, and these higher prices are now flowing directly into Moscow's reserves.