[heading]Despite Ukrainian Chaos, Kiev Still Wants Gold[/heading]
Allegedly one month ago, under the cover of darkness, Ukraine put its gold reserves onto a plane and shipped them to the US for safekeeping. (they should have asked Germany first about this)
Though this story is not confirmed, amid the chaos in Ukraine, the gold market keeps coming up. And for good reason…
Sure, Ukraine owes Russia massive gas debts and sizeable bond maturities pending. Nevertheless, the first thing Ukraine will spend its International Monetary Fund loan on is gold…one billion dollars worth of gold, in fact. This is a continuation of a trend in Ukraine.
With Kiev using its first portion of IMF loan on gold and currency reserves, and the inevitability of Ukrainian bankruptcy, one can assume that, as Ukraine goes into receivership, a western institution (likely global) will inherit the gold. National Bank Chairman Stepan Kubiv said Monday, May 5:
“Over $1 billion from the first portion of the loan will go into the gold and currency reserves of Ukraine, which will strengthen the financial system of the country. The remainder will go to the budget to stabilize the macroeconomic and financial situation in Ukraine,” he said.
Ukrainian gold reserves have been increasing in recent years, and Ukraine is officially one of the top gold holders in the world.
Is Kiev acting as a proxy for the US government, and namely the NY Fed, by purchasing the gold? This is something we just don’t know. The IMF loan has coincided with gold’s best two days in four months.
Gold rallied from the lowest price in more than four weeks on safe haven demand in the wake of G7 nations threatening more-and-more sanctions against Russia after the annexation of Crimea. Banks like JP Morgan have even got into the sanction craze.
G7 leaders said they won’t take part in a G8 meeting that had been set for Sochi. Instead they will attend their own summit in June in Brussels. The G7 said in a statement that they are ready to “intensify actions”, including coordinated sectoral sanctions.
UKRAINE NOT ALONE
Ukraine is in no way innovative in allocating funds to gold. Nation-states the world over have been buying gold. Iraq purchased a massive amount of gold in March.
Iraq’s Central Bank said it bought 36 tonnes of gold to help stabilize the Iraqi dinar against foreign currencies.
This is a lot of gold for Iraq, as the March purchases alone surpasses the entire demand of many large industrial nations in all of 2013. The entire demand of France, Taiwan, South Korea, Malaysia, Singapore, Italy, Japan, the UK, Brazil and Mexico was surpassed. The gold demand fell just below the demand out of Hong Kong for all of 2013.
Ukraine’s gold reserves are approximately 36.1 tonnes, according to the national bank, and is ranked 47 in world standings. In March, Ukraine was ranked 51 according to the World Gold Council.
For the last three years Ukraine has been diversifying its international reserves into gold, which it purchases in foreign and domestic markets.
Ukraine has also wanted to get into gold mining in recent years, but it is likely tensions there will weigh on these developments.
Currently, there is no gold production in Ukraine. It has been purchasing on averages 5 tonnes of gold in recent years. Domestic production of gold could start as early as this year, according to the deputy head of National Bank.
In three to five years Ukraine was expected to produce at least one ton of gold domestically and gradually increase its capacity which will allow to cut imports by a third.
With the move into gold via IMF loans, Ukraine continues the trend of buying gold in the wake of the Ukraine crisis.