MOSCOW (Commodity Online): Russia’s Central Bank picked up the pace of gold purchases in November, diversifying reserves as a weaker dollar boosts the appeal of bullion. And, it has announced that Russia may buy more gold in the coming days.

Russia’s gold reserve probably rose by $790 million to $23.1 billion in the week ended November 27. The Central Bank increased gold holdings by almost 130 tonnes in the last year. The bank’s holdings equaled $23 billion on December 1, a gain of 13 per cent in the month.

Russia plans to increase gold holdings and diversify the structure of its reserves, seeking alternatives to a weakening dollar.

That development worries some people: Since central banks typically buy US dollars to store their foreign exchange reserves, the growing taste for gold can be seen as the latest sign that the greenback’s status as the world’s sole reserve currency is in jeopardy.

The yellow metal has been on a tear since the end of August, but the rally gained added momentum starting on November 4, the day after the Reserve Bank of India announced that it had bought 200 tonnes of gold from the International Monetary Fund in October.

On November 23, Russia’s central bank announced that it had bought 15.6 tonnes of gold in October to add to its monetary assets. But unlike its Indian counterpart, Russia’s central bank bought gold produced by the country’s own gold mines. The additional gold was only 2.7% of the 568.4 tonnes it owned in September, which represented 4.3% of its total reserves.

In view of widespread forecasts of further declines in the dollar's value, it doesn't surprise economists and investment pros that there should be a growing desire by global central banks to diversify away from the greenback. Lower demand for dollars makes sense to central bankers in countries such as Japan, which is no longer trying to control its exchange rate vis à vis the dollar and is no longer so inclined to buy greenbacks to support the dollar's value, says Barry Bosworth, a senior fellow at the Brookings Institution in Washington.

But central banks' sharper focus on gold mystifies Bosworth. It would seem more rational for commodity-exporting countries to shift toward holding a basket of currencies in their reserves, including currencies of some emerging markets, which are becoming more important trading partners, he says. Given China's future prospects, it would make sense for central banks to diversify into the yuan, except that it isn't a tradable currency.

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