Gold ETFs Weaken on Concerns Russia Could Dump Reserves

December 18, 2014

London (Dec 18)  After Moscow’s surprise rate hike failed to lift its ailing ruble currency, traders are betting that Russia could dump gold next, pressuring gold bullion and related exchange traded funds.

The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) ended Wednesday down about 0.8%. Year-to-date, the gold ETFs have declined about 1%.

COMEX gold futures were trading around $1,186 per ounce.

Kevin Mahn, a manager at Hennion & Walsh Asset Management, argues that Wednesday’s drop in gold prices suggested that traders could be betting on Russia to into gold reserves to stop the ruble’s bleeding, reports Debarati Roy for Bloomberg.

“Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves,” Mahn said in the article. “If it happens it will push gold lower.”

In response to the quickly depreciating ruble currency, the central has already dumped $80 billion to counteract the ruble’s sell-off, with Russia’s foreign currency stockpile diminishing to a five-year low. [It’s Going to be Another Interesting Day for Russia ETFs]

This year through November 18, the central bank has added 150 tons of gold. As of November, Russia held about 1,169.5 metric tons of gold, which accounted for about 10% of its foreign reserves. [Russia ETFs Slump as Default Odds Soar]

“There are a number of ways that they could use their gold,” Robin Bhar, an analyst at Societe Generale SA, said in the Bloomberg article. “They could use it as collateral for bank loans, or for loans from multi-lateral agencies. They could sell it directly in the market if they want to raise foreign-exchange” reserves, including to get more dollars.

However, some argue that Russia may not be desperate enough to sell-off its gold holdings. Dumping gold reserves are meant as a measure of last resort since the metal helps back their currencies.

“They are probably still accumulating gold and keeping it for a bigger crisis,” George Gero, a precious-metal strategist at RBC Capital Markets, said.

Source: ETFtrends

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