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. Last Updated: 07/27/2016

Russian Reserve Sales Pique World Interest

Russia sold platinum, palladium and diamonds in 1995 and 1996, apparently to save its economy from ruin, but the near-depletion of strategic gold stockpiles does not point to big bullion exports, officials said Friday.


The sales were well above planned levels, but the news has not shed much light on the exact size of secret stocks of precious metals and diamonds in Russia, which holds the key to world markets and is a major supplier.


But a Central Bank official said gold had not been exported.


"Gold is not leaving the country," deputy press director Natalya Khomenko said.


She said strategic reserves were nearly empty, not because they had been exported, but because the bank had bought them.


The bank's gold reserves, used to defend the ruble and kept separately from strategic stocks, are 400 tonnes, she said.


The size of Russia's precious metals stockpiles, especially platinum, is of major interest to world metals markets, and Moscow's gold sales have in the past moved prices furiously.


But platinum, palladium and diamond reserves are a fiercely-guarded state secret, so clues are welcome.


A senior source at Russia's Audit Chamber said Russia sold gems and precious metals in higher than planned quantities in 1995 and 1996.


The source said 1995 exports of precious metals and diamonds were 50 percent more than the 4.6 trillion rubles ($1 billion at December 1995 exchange rates) planned in the budget.


He said 1996 sales were twice the planned level of 4.5 to 4.6 trillion rubles (then worth about $800 million).


"They would seem to be pretty authoritative numbers, given that they're coming from the audit office," said one European metals analyst.


But Andy Smith of UBS in London urged caution. "Confusion, uncertainty, grain of salt -- those are the key words. Again, we don't know what the starting point was, truth be told."


The Audit Chamber is a little-known, powerful independent body responsible for checking how revenue and expenditure targets in the budget and at state organizations are met.


"What it boils down to is that the sales are probably not great news for the government because it shows that they need to find all the cash they can get," said mining specialist Raj Kohli at Paribas Capital Markets in London. Russia is one of the world's top producers of platinum and its sister-metal, palladium. Its gold reserves in the ground are the world's third-largest, while its rough diamonds accounted for about one quarter of De Beers annual sales of rough gems.


A second Audit Chamber source said Russia's diamond stockpile could run out between March 1998 and September 1998 unless it was replenished.


Russia's gem mines require vast investment.


The extra gem and metals sales in 1995 and 1996 took place as Russia, struggling to revive its economy and breathe life into market reforms, sought to cover budget revenue shortfalls.


"Maybe it's because revenues from privatization were less, and they needed other sources of revenue," the first Audit Chamber source said.


Metals analysts in London and Johannesburg have long believed that Russia has been selling platinum and palladium stockpiles to earn much-needed foreign currency.


?The price of gold skidded to 3 1/4- year lows Friday in a market that dealers said was wracked by widespread speculation about new central bank selling.


Prices made a half-hearted effort at a bounce before sinking again in the afternoon towards the morning's lows.


"No one knows where the bottom is. Everyone who's tried to pick it so far has been wrong," one dealer said.


Bullion was fixed at $345.50 an ounce in the afternoon, only 50 cents above the morning level. The morning fix was the lowest since Sept. 14, 1993, and down a dramatic $4.25 from Thursday afternoon's fixing.