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As Russia Dumps A Record Amount Of US Treasurys, Here Is What It Is Buying

Tyler Durden's picture




 

Last week we commented that based on TIC data, while "Belgium's" unprecedented Treasury buying spree continues, one country has been dumping US bonds at an unprecedented rate, and in March alone Russia sold a record $26 billion, or 20% of its holdings.

So as Russia is selling record amount of US paper, what is it buying? For the answer we go to Goldcore which tells us that...

Russia Buys 900,000 Ounces Of Gold Worth $1.17 Billion In April

The Russian central bank has again increased its gold reserves by another 900,000 ounces worth $1.17 billion in April.

Russia's gold reserves rose to 34.4 million troy ounces in April, from 33.5 million troy ounces in March, the Russian central bank announced on its website yesterday. The value of its gold holdings rose to $44.30 billion as of May 1, compared with $43.36 billion a month earlier, it added.

The following is a summary from Bloomberg of the April data template on international reserves and foreign currency liquidity from the Central Bank of Russia in Moscow:

Russia's gold & foreign exchange reserves remained virtually unchanged at USD 471.1billion in the week ending May 9. Russia’s reserves have fallen since the crisis began but remain very sizeable. The reserves include monetary gold, special drawing rights, reserve position at the IMF and foreign exchange.

The 900,000 ounce purchase is a lot of physical gold in ounce or tonnage terms but as a percentage of Russian foreign exchange reserves it is a very small 0.24%.

Gold as a percentage of the overall Russian reserves is now nearly 10%. This remains well below the average gold holding as a percentage of foreign exchange reserves of major central banks such as the Bundesbank, Bank of France and the Federal Reserve which is over 65%.

The Russian central bank has been gradually increasing the Russian reserves since 2006 (see chart above). On average they have been accumulating 0.5 million troy ounces every month. Therefore, the near 1 million ounce purchase in April is a definite increase in demand.

This was to be expected given the very pronounced geopolitical tension with the U.S. and west over Ukraine. Indeed the TIC data shows that Russia has been aggressively divesting themselves of U.S. Treasuries.

Russian holdings of U.S. Treasuries fell very sharp, by nearly $50 billion, between October and March 2014 or nearly a third of Russia’s total holdings. Over half of the plunge came in March, when $26 billion was liquidated as western sanctions were imposed. TIC Data for April won’t be available until June and will make for very interesting reading.

Especially given the mysterious huge U.S. Treasury buying that is being done by little Belgium. This has analysts scratching their heads and has aroused suspicions that the Fed and or the ECB may be behind the huge Belgian purchases.


Russian Gold Reserves in Million Fine Troy Ounces - 1995-2014 - Monthly Chart (Bloomberg)

Russia has already made their intentions regarding gold very clear. Numerous high ranking officials have affirmed how they view gold as an important monetary asset and Putin himself has had many publicised photos in which he very enthusiastically holds large gold bars.

On May 25th 2012, the deputy chairman of Russia's central bank, Sergey Shvetsov, said that the Bank of Russia plans to keep buying gold in order to diversify their foreign exchange reserves. 

"Last year we bought about 100 tonnes. This year it will be less but still a considerable figure," Shvetsov told Reuters at the time.

The World Gold Council reported yesterday that central bank purchases were 70% above their 5-year quarterly average, led by Iraq and Russia. The Eurozone actually became a net buyer thanks to Latvia joining the single currency union, adding its gold to the Eurozone reserves as part of the Euro treaty.

Russia may be planning to give the ruble some form of gold backing in order to protect the ruble from devaluations and protect Russia from an international monetary crisis and the soon to return currency wars.

Russian central bank demand and indeed global central banks demand is set to continue as macroeconomic, monetary and geopolitical uncertainty is unlikely to abate any time soon. Indeed, it may escalate substantially in the coming months as we move into the next phase of the global debt crisis.

 

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Thu, 05/22/2014 - 04:39 | 4784022 Ham-bone
Ham-bone's picture

Why did Russia begin buying Treasury's in '07 where they had never shown interest before??? 

Why did Russia hit peak ownership in July '10 @ $176 B and why in decline since??? 

Why exactly as Russia peaked and began it's decline did Belgium (holding "only" $17 B in Jun '10...the month before Russia's peak), begin it's massive accumulation starting in July '10???  Belgium had held between $10 - $15 B since the turn of the century...why the big change???  Transferrance???

Here's the data... 

Jan '03 - Russia holds less than $5 B / Belgium holds $16 B

Jan '07 - Russia holds $8 B in Treasury's...has not held significant Treasury positions

Jan '08 - Russia $35 B / Belgium $13 B

Jan '10 = $124 B (Russia peaks in Jul '10 @ $176 B) / Belgium holds $17 B as of Jun '10

Jan '11 - $139 B Russia / Belgium $32 B

Jan '12 - $146 B / Belgium $132 B

Jan '13 - $164 B / Belgium $186 B

Jan '14 - $132 B / Belgium $310 B

Mar '14 - $100 B / Belgium $381 B

 

Thu, 05/22/2014 - 04:54 | 4784029 Ham-bone
Ham-bone's picture

and why did finance centers feast on Treasury's since '07???  What changed???  Particularly since the US trade deficit peaked in '06 (-$752 B/yr) and has fallen nearly in half since ($475 B/yr '13)...half as many dollars to be recycled into Treasurys???

GLOBAL BANKING CENTERS

Jan '00 -      '07 -          Feb '14

"Carribean banking centers"

 $      35 B ---> $68 B  ---> $312 B

UK    $50 B  --->  $100 B ---> $176 B

Switzerland $18 B> $34 B  ---> $176 B

HK       $39 B --->  $52 B  ---> $156 B

Singapore $30 B->  $30 B  ---> $91 B

Ireland $5 B --->  $19 B  ---> $113 B

Belgium $28 B -->  $13 B  ---> $381 B

Luxemburg <$5 B-> $60 B --> $145 B

TOTAL    $210 B      $376 B     $1,550 (750% increase)

 

Why did "foreigners" suddenly want to buy so much of something no one in the US (other than the Fed) wanted to buy???

Jan '00 -      '07 -          Feb '14

$1 T  --->  $1.6 T ---> $5.9 T (cumulative "foreign" held US Treasury debt)

25% --->     40% --->    55%  (% of notes / bonds held by "foreigners")

1%  --->      1%  --->     25%  (% Fed held notes / bonds...Fed primarily held Bills until '08)

And of course this is why our debt payments have collapsed...while our debt has more than tripled since '00

6.6% --->    5%    --->   2.4% (net interest rate on debt)

$300B ->  $270B ---> $223B (net interest paid on national debt)

$9.2 T --> $13.7 T --> $16.2 T (GDP = 75% increase);

$5.7 T -->  $9 T     --> $17.5 T (National debt = 305% increase )

Thu, 05/22/2014 - 05:21 | 4784039 Ham-bone
Ham-bone's picture

and fwiw -

while Belgium increases it's Treasury holdings ($33 B Jun to $133 B by Sept '11) in the summer of '11...silver and then gold begin their collapse...but then no further purchases from Belgium til Jan '13...

Silver collapses from $32 to $18...Gold from $1700 to $1200...while Belgium begins a buying spree starting in Jan '13 @ $185 B up to $381 B today..

Not saying they are neccessarily related but interesting correlations...

Thu, 05/22/2014 - 06:07 | 4784056 supermaxedout
supermaxedout's picture

Very interesting numbers. Where did you find them?

I assume these numbers are correct, this would mean, that the practice to hide the weakness of Treasuries via foreign banks has enormous dimensions.

In the case of Belgium its hidden by the Euroclear front. How is it in other countries like for example Luxembourg and Ireland. I assume the front for the purchases are banks and they do hold these Treasuries on their balance sheets, Right ?

You stated, that the trade deficit of the US came down nearly 50% between 2006 and 2013, this would indicate that lesser Dollars are available for foreigners to purchase treasuries. But as your numbers show the Treasuries owned by foreign banks or Euroclear rose since 2006 by 750% to more than 1.5 Trillion.

If your numbers are correct, this would mean, that the additional (hidden) QE via foreign bank entities amounts to approx. 1.2 Trillion. Right ?

If this is all true, then I understand now better why the US/UK were fighting nails and teeth to sabotage an effectice, centralized European Banking supervision via the the ECB. Now the Fed can not hide the desaster anymore inside European banks. Because the thing is, the banks need the money first for their purchases of Treasuries. Its whether own capital or an outside loan  with the purchased Treasuries as collateral. And who can give a loan on such low interest rates (must be lower than the interest on the Treasuries) to make at least a minimum profit ?  It can only be done by a Central Bank.

Now I understand why UK/US is putting upon the ECB strong pressure since years to lower the basic interest rate to zero, like in the US. And this is why the ECB is pressed by US/UK to introduce also QE.  QE by the ECB means, that there is enough money there to finance in the future these hidden Tresuries purchases.  The Fed can then continue the show that she is tapering and might raise the interest rates then. The profits generated by the higher interest rates are going back to the Fed since the money from the ECB did not cost anything. When the Fed is rasing the interest rate, the ECB is doing the same while QE is still maintained by both Central Banks - that is the plan ! But till now the ECB has not given up resistance, I hope.

So for them its a neutral position. Once you own all your debts by yourself it doesnt matter if you pay a high interest rate. In this scenario I assume, that the Fed and the US government are sitting in the same boat.  However the bill is going to be paid by the population of the US as well as Euroland via galopping inflation in the years to come.

China, Russia et al are just now decoupling themself from this fraud so that they are very little affected in the case the depression hits the Western world hard.

But for all opthers capital is becoming expensive and a depression is triggered.  The perfect starting scenario for the final blundering.

 

Thu, 05/22/2014 - 06:23 | 4784071 Ham-bone
Ham-bone's picture

funniest part of it all is that all of this is sitting there in TIC data...just seems not many add it up and communicate the very clear trends...of course TIC could be wrong and TIC states their data only shows where the debt is purchased...not who ultimately holds it or where the money for the purchase came from.

http://www.treasury.gov/ticdata/Publish/mfhhis01.txt

Thu, 05/22/2014 - 07:31 | 4784149 Wahooo
Wahooo's picture

Massive dollar prop is what I see in this data.

Thu, 05/22/2014 - 07:07 | 4784103 muleskinner
muleskinner's picture

A billion dollars worth of gold would be good to have.

If Russia would buy oil at 80 dollars for each barrel, they could buy 12,000,000 barrels, turn around and sell it to Europe for 100 bucks, they could pocket 200 million dollars in a heart beat.  The oil will last about 6 hours, so Russia could make 200 million dollars every 6 hours supplying oil to Europe.

1.2 billion dollars each day, after a year, they have some money.  Be nice to have some money in those super sized numbers.  It would be a good payday.

Russia does have oil, can export oil and gas to Europe, and is probably raking in about 650,000,000 dollars each day exporting oil.

Can't have that, the money masters have to get their dirty, filthy, money grubbing hands on all that money that is theirs, not Russia's.

A billion in gold is nice to have, but the oil money is better, especially when everybody wants oil more than they do gold.

Russia has oil and it should belong to Wall Street, not Russia, for God sakes, something must be done.

Thu, 05/22/2014 - 07:19 | 4784131 q99x2
q99x2's picture

Satan was a fiat creation.

Thu, 05/22/2014 - 07:28 | 4784147 RabbitChow
RabbitChow's picture

So let me get this straight.  Russia SELLS $26 BILLION of USTs in order to buy only about $1 billion in gold?  What'd they do with the other $25 billion?  Why don't they buy and take posession of $26 billion worth of gold?  Are they trading their UST holdings with China in exchnage for gold?

Thu, 05/22/2014 - 07:51 | 4784183 dontgoforit
dontgoforit's picture

Maybe part of the deal to fund the gasline?

Thu, 05/22/2014 - 09:10 | 4784397 El Hosel
El Hosel's picture

Only one Billion left after the Oligarchs take their cut... We won't see the list of what they buy.

Thu, 05/22/2014 - 08:51 | 4784347 Lionhearted
Lionhearted's picture

Looks like the Market has gotten wind of the buy. http://www.kitco.com/charts/livegold.html

Thu, 05/22/2014 - 09:08 | 4784389 El Hosel
El Hosel's picture

About time to get Bullish of tungsten, Denny?

Thu, 05/22/2014 - 19:28 | 4786837 w a l k - a w a y
w a l k - a w a y's picture
Angry Plant

So now lets ask what Russia did with the money from sale of 26 billion US tresurys?

                    1.17 billion into gold what about the other 24.83 billion?

El Gordo

Sold $26B treasurys, bought $1.17B gold.  What did the do with the other $24.8B, move it to Putin's personal account?

 

Could be 900,000 oz in bulk costs @26B placing it at $28,888/oz?

But to buy you have to sign non-disclosure of true cost, and give a deceptive cost/oz as the price paid.

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