Russia’s Massive National Wealth Fund Adds Gold to Investment Universe

Posted on 05/27/2021

Russian Prime Minister Mikhail Mishustin inked a decree validating the possibility of investing the funds of the National Wealth Fund (NWF) in gold, according to a statement released on the website of the government.

“It will be possible to place the funds of the National Wealth Fund (NWF) on bank accounts with the Bank of Russia in precious metals, particularly in gold, which is traditionally a defensive asset,” the explanatory note to the document said.

The earnings of the NWF’s funds invested in gold will be formed based on transactions on its purchase and sale considering the gold prices effective on the day of payment, the government said. The decision will make it possible to diversify the investments by NWF in a move to guard them against loss, as well as increase yield, according to the explanatory note. The legislation was introduced as a resolution to the management procedures of investments for the wealth fund. The resolution (Resolution of May 21, 2021 No. 765) was signed off by Russian Prime Minister Mikhail Mishustin on May 21, 2021.

Already, the Central Bank of Russia has increased its holdings in physical gold over the years. At the end of June 2020, gold comprised of 23% of the central bank’s reserves. The share of the U.S. dollar fell to 22%, down more than 40% from 2018. The combination of sanctions from the U.S. and massive QE policy from America, has prompted Russia to “de-dollarize” the Russian economy. Gold is now the second-biggest component of the central bank’s reserves after the euro.

Russia’s National Welfare Fund has an asset allocation to foreign exchange and debt instruments. There is some allocation to strategic equities. This amendment adds gold to its physical universe of allowed investments.

Keywords: Central Bank of the Russian Federation, Bank of Russia, National Welfare Fund.

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