Since the great gold crash of March 2013, it’s been tough times for the yellow metal. A troy ounce of gold is now worth 22% less than it was in January. Despite voracious bottom-feeding from China that continued in Q3, gold demand fell 21% last quarter, compared with Q3 2012, says the World Gold Council, which cited people selling shares in gold exchange-traded funds (ETFs) as the biggest reason.
But one country is still aggressively building up its gold holdings. Russia’s central bank added another 18.7 tonnes (20.6 tons) to its gold reserves in Q3 2013. The 1,015 tonnes it now has marks the first time it has crossed the 1,000-tonne mark.
Russian lawmakers have in the past attributed the central bank’s gold binge to a strategic shift away from reserve currencies like the dollar or the pound. It’s not the only one—since the beginning of the US Federal Reserve’s Quantitative Easing programs, many countries’ central banks have been spooked by the decreasing value of their dollar reserve holdings. Russia’s been buying far more aggressively than anyone else, adding 520 tonnes in the last five years.
Though the huge legacy holdings of the US and European countries mean that the size of Russia’s reserves still only ranks seventh in the world, it’s gaining fast on Switzerland’s 1,040 tonnes. (The latest number for China is 1,054 tonnes, but that is outdated since China stopped reporting its holdings long ago.)
And it’s not just the central bank in Russia that is betting on gold’s long-term value. Russian companies ramped up production in both mines and gold recycling facilities, cranking out 13.4% more in the first nine months of 2013 than they did during the same period a year earlier. That puts Russia on track for an even bigger jump in gold production than the 6.8% increase in 2012.
Russia’s gold strategy isn’t entirely a bad idea. Even as prices drop, supply has been shrinking, which could contribute to steady or higher prices down the line.
Output of recycled gold plummeted 12% in the four quarters ended Sep. 2013, compared with the same period a year earlier. Mine production, which produces around twice what recycling does, increased 3% during that same period—not enough to keep overall supply from shrinking. That drop is due in some part to the fact that, throughout Q2 and Q3, prices have been too low relatively for gold sellers. But it’s also due to a growing scarcity of old gold used to be recycled.