Sanctions fuel Russia's jump to fifth biggest holder of gold

* Russia’s bought 8.5 mln oz of gold in Jan-Nov 2018

* Russia to disclose its December gold holdings on Jan. 18

* Central Bank buying domestically produced gold

MOSCOW, Jan 18 (Reuters) - Russia’s Central Bank has overtaken China to become the world’s fifth biggest holder of gold, as Western sanctions lifted buying to record highs in 2018, according to data and industry sources.

With support from President Vladimir Putin, the Central Bank has been betting heavily on bullion, often seen as a safe haven or a natural hedge against the dollar, with active purchases in the last 10 years.

In 2018, Russia’s buying jumped as holdings in U.S. Treasury Securities were reduced, after Washington imposed sanctions on Russian entities in April, the toughest since Moscow’s 2014 annexation of Crimea from Ukraine.

The Central Bank bought 8.5 million troy ounces in January-November 2018, it said last month. It will disclose its gold holdings for the end of December at 1300 GMT.

Even if December was a rare month of no purchases, the data for the first 11 months of 2018 already takes last year’s purchases above a record 7.2 million ounces set in 2017.

On Dec. 1, the Central Bank held 67.6 million ounces of gold, making it the world’s fifth largest holder behind the United States, Germany, France and Italy, compared with 59.1 million ounces at the start of 2018.

China dropped to sixth place as it reported an increase in gold reserves just once in more than two years - to 59.6 million ounces in December 2018 from 59.2 million ounces in October 2016.


Industry sources said one of reason Russia’s Central Bank was betting on gold due to U.S. sanctions was because it could not be frozen or blacklisted.

“It seems that there is an aim to diversify from American assets,” said a source in one of Russian gold producers, referring to the Central Bank’s holdings.

Putin said in May that “the monopoly of the U.S. dollar is not reliable enough, it is dangerous for many.”

Russia’s Central Bank is buying domestically produced gold from commercial banks. The size of future purchases is a state secret. It is not clear whether it will keep raising its gold holdings at the same pace of about 14 percent a year in 2019.

However, the Central Bank has already bought a significant portion of Russia’s domestic gold production, which is also rising but at a slower pace, industry sources said.

Russia, the world’s third largest gold producer, increased its 2017 gold output by 6 percent. The producers’ lobby Gold Industrialists’ Union previously expected Russia’s 2018 production to rise by 3 percent.

According to the latest available data from Russia’s Finance Ministry, Russia produced 8.5 million ounces (265 tonnes of gold) in January-October 2018. (Reporting by Polina Devitt and Elena Fabrichnaya in Moscow, Harshith Aranya in Bengaluru, Tom Daly in Beijing Editing by Veronica Brown and Edmund Blair)