Russia’s holdings in U.S. government debt instruments has drastically decreased since March, according to U.S. Treasury Department figures. Earlier in the year, Russia’s investment in U.S. debt was holding steady with $96.1 billion in U.S. Treasury bonds. Their recent sell-off has dropped their holdings to an 11-year low. While some analysts have speculated that several factors could be at play in Russia making the decision to largely divest its investment in U.S. debt to shift to gold, the answer may be nothing more than a matter of return on investment (ROI) and safety.
In March, prior to the Russian sell-off, the U.S. Treasury Department reported that Russia held $96.1 billion of U.S. debt, which dropped to $48.7 billion in April, basically a divestiture of half of the their holdings. In May, they had another large sell-off, dropping their holdings to $14.9 billion. While this is a significant move, considering that in 2010, Russia held $176.3 billion worth of U.S. debt, some of which was moved to gold, it is not an unheard move. At the moment, it is considered a buyer’s market for gold, and prices during the Russian sell-off are sitting in close proximity to where they were in 2011, according to Gold Price statistics, when they made a similar move from U.S. debt to gold.
While there have been talks that the sell-off is potentially related to political motives, or some dark conspiracy, the simpler answer is likely that investments in gold are projected to outperform investments in U.S. debt. Elvira Nabiullina, the head of the Central Bank of Russia, said the move was motivated by an analysis of financial, economic, and geopolitical risks, in an interview with Russian Times. With that said, they do note that sanctions against Russia appear to coincide with the sell-off, and that “Global geopolitical conflicts along with trade tensions triggered by the U.S. earlier this year have made some countries follow suit.”
Russia is dumping US debt and buying gold instead https://t.co/A0Ip5T3LIV
— Business Insider (@businessinsider) July 19, 2018
It is pointed out that Turkey has decreased their investment in U.S. debt from $62 billion in November to $32.6 billion in May, and even Germany sold off about $8 billion of their debt holdings as well. The trade in U.S. debt is an extremely liquid market, so large divestitures are not unusual.
Padhraic Garvey, the global head of debt and rates strategy at ING, spoke to Business Insider, saying that for Russia, this move into gold is like going from a safe investment to an even safer investment. Most analysts agree that there are no nefarious motives or deeper meanings behind the move. Russia is now estimated to hold $80.5 billion in gold reserves, which bumps China from the top spot.