Will Gold Crash Due To Russian Selling

Hello, friends. This is Vijay Bhambwani here. I hope my videos are helping you understand the nuances of the markets better and making you better investors and traders.

In this video, I am going to tackle a very critical issue. Some doubts that you might have regarding the strife in Eastern Europe, particularly between Russia and Ukraine.

Access Now: 3 Must Own Stocks to Ride the Market Fall

Now I have been advocating investing in gold and investing in silver in the physical form since the time I have started recording videos for Equitymaster in the middle of calendar year 2019. While 2019-2020 were good years for bullion, 2021 was a rather forgettable one because gold and silver both reacted lower. Now that we are seeing, gold and silver rise higher, there might be some doubts in some investors' minds about the problem that Russia is facing now that it is cut off from SWIFT.

There might be sanctions that could impose restrictions on the movement of money both into and out of Russia, and therefore the Russian central bank may resort to selling it's hoard of gold or his reserves of gold. If Russians start selling their gold, will the price of gold collapse and will the dream run that you have seen in the last few weeks end?

So this, of course, is a very critical issue and in my video I'm going to share my thoughts with you and provide you with some fun facts, some hard data, and we will arrive at a 360 degree decision about whether we should be holding our gold and silver or we should be liquidating them. So here goes.

Now the country-wise holding of gold, in metric tons, as well as the percentage of that holding of gold, as a component of its total reserve, is something that I wish to share with you. And then we'll also look at the implications of these numbers.

The USA tops the list with 8,130 for tonnes of gold and that gold is basically 79% of its entire reserves. The next spot goes to Germany, which is holding 3,359 metric tonnes of gold, which is 76% of its entire reserves. Third is Italy at 2,452 tonnes of gold, with that being 71% of its entire reserves. Number for is France with 2,436 metric tonnes, which comprises 66% of its total reserves.

Now this is the Western world, typically America and Western Europe. Let's now come to Eastern Europe and Asia. Now you will certainly see a tectonic shift.

Number five is Russia, which is what this video is all about, which holds 2,299 metric tonnes of gold but that comprises only 21% of its reserves. China comes at number six with 1,948 metric tonnes, but that is only 3% of its entire reserve. Switzerland 1,040 tonnes, which is 7% of its entire reserves. Japan holds 846 metric tonnes, which is only 3% of its entire reserves. India holds 750 for metric tonnes, which is 8% of its entire reserves, and we go to Netherlands which of course is a western European country which holds 612 metric tonnes, which is 71% of its entire reserves.

So what we do see is, on one hand, Europe and America hold a lot of gold and that's a very big component of the total reserves. In Asia, we tend to hold a lower amount of gold as compared to America and Europe, but that component is extremely small is compared to the entire reserves that we hold.

So if it all push comes to shove, gold is not the last resort that you would want to sell. Take, for example, India. The share of gold in Indian total reserves is approximately 8%. So there are 92 point some fraction percentage of other assets that India still holds in addition to gold, which can also be sold, should push come to shove. This is a hypothetical situation.

So with Russia having 21% of its entire holding in gold, it still has 79% by way of other assets. Now, you could even argue that some of the Russian forex amounts lying in American and European banks have been confiscated, which means that the percentage of gold comprising its total reserves might go up because this data is somewhat dated.

Fair enough. Now, what if the Russians were to resort to selling gold to raise cash? Can it happen? Definitely, it can happen because war is a very expensive business. You need money to basically keep men and machines going. So the Russians, can they sell their gold? Yes, they can, but they are risking destabilising the rubble versus is the dollar, which is now trading in triple digits.

So look at the other countries which are likely to buy gold because of this very problem of war. First of all, the largest gold ETF in America itself is witnessing renewed interest in physical buying of gold. On the other hand, in 2021, we saw Thailand, which was the biggest buyer, Thailand's central bank that is, the biggest buyer, with 90 metric tonnes being purchased in 2021 alone. India came at a close number two in 2021 with purchases of 77 metric tonnes.

As a matter of fact, the holding of central banks, where gold is concerned, is now a 31 year highs and climbing. That's the most important part. It's climbing because central banks are slowly but surely moving assets very, very gradually very, very mildly, out of the US dollar and getting into bullion because the world itself after covid is a little more nervous, a little more frightened, and a little more edgy. So as the old saying goes in God we trust and then we trust in gold. So God and gold. Gold, as it is, is the currency of the Gods. So central banks are now reposing their trust in gold.

Ironically, the countries that are facing threat or feeling threat perception from the actions of Russia over Ukraine, Uzbekistan, Kazakhstan, their central banks are now starting to buy gold because they feel they could feel the heat, or rather, the collateral damages of war in the neighbourhood, which means their local currencies could suddenly start weakening, imported inflation could come in, and therefore by reflex, they are basically trying to buy gold.

So it is not that Russian gold can destabilise gold prices and trigger a big collapse because there are other central banks which are readily able to and willing to buy gold. There are ETFs in the western countries which are lapping up gold, and we, as the retail investors are also either looking at gold with renewed interest, or some of us are even buying by way of ETFs or physical, of whatever.

So these Russian selling at best will be a comma, but not a full stop in the rally in gold. The numbers seem to back that hypothesis.

On this cheerful note, I'll bid goodbye to you, not before reminding you to click like on this video if you liked what you saw, Subscribe to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about fresh videos being put up out here.

Good, bad or ugly, I always look forward to your feedback in the comments section, and please help me reach out to fellow like-minded investors and traders by referring my video to your family and friends.

Thank you for your patience. Till we meet again in my next, this is Vijay Bhambwani signing off for now. Bye.