This is a snippet from a recent issue of the Gold Forecaster with Subscriber-only parts excluded.

Russia's central bank has bought 180 tonnes since June 2006 and another Russian Agency holds off selling 50 tonnes. What's going on?

It takes a long time to buy useful quantities of gold in the 'open' market. It has taken Russia over 3 years to buy 180 tonnes there. We imagine that they set price limits on their buying. This meant they bought more in one month than in the next, as the gold came onto the market. There is no reason to believe that that policy has changed.

Then suddenly, out of the blue comes the leak of a sale of gold that Gokhran precious metals depository was planning to sell up to 51.44 tonnes by the end of 2009. The leak then prompted a postponement until next year and now Finance Minister Alexei Kudrin said that Russia is considering selling gold on world markets to cash in on high prices as the government faces its first budget deficit in a decade.

Sounds like someone is opening their mouth, to change feet? We have no doubt that the Gokhran precious metals depository did not consult the Russian central bank. Indeed, when the leak happened and the world reacted, the news fed through to the Ministry of Finance, who had to say something and seemed to say the first thing that came to mind. But this is not a new scene in the gold market. In three gold holding countries politicians have tried to rule their central bankers and press for the national gold to be sold. One governor of the Banque de France, M. Noyer, likened it to 'selling the family jewels'.

Germany, France and Italy.

• When the German government felt that gold in the Bundesbank should be sold. There was a public debate that cost the job of the Bundesbank President. He was replace by Herr Weber, the present incumbent, who also did not want the gold to be sold. The independence of the central bank was established and the Bundesbank was allowed to hold onto Germany's gold. They had the option to sell 600 tonnes under the second Central Bank Gold Agreement, which was not taken up. Germany has not and will not sell their 'Official' gold. Herr Weber pointed out why [this is now the opinion of the European Central Bank], when he said "gold is a useful counter to the swings in the $". Oh, how right that has been. But now that extends to all currencies as we saw in the last week, when gold has risen 5+% against all currencies.

• France faced the same dilemma, when M. Noyer Governor of the Banque de France, was pressed, by the then Finance Minister, Sarkozy, now the President of France. M. Noyer bowed under the future President's pressure and sold most of the 600 tonnes allocated for sale by France under the Central Bank Gold Agreement. President Sarkozy must be regretting the loss to France now.

• Then the Italian Parliament did the same thing and expressed a desire that their central bank sell some of their gold to help with their budget deficit. This was prevented by the European Central Bank, who said that it went against the E.U. rules, so that potential sale came to naught.

It seems that politicians and central bankers just aren't on the same page. Please note that in two of the three scenes central bankers held onto the family jewels. In the light of the past five years gold price rise, we are sure that France would hold onto its gold.

Now Russia, so famous for its dominant bureaucracy seems to be following a well-blazed trail. You would have though that one phone call from the central bank to the Precious metal's depository would have solved the problem and kept them from looking bad in the public's eye?

Tiny Impact on Budget Deficit

The sale could bring in around $1.7 billion [Rubles 49.385 billion]. As with the above countries, this money will barely dent the deficit. Russia's budget deficit next year is expected to be 2.9 trillion Rubles [$99.828 billion]. Russia is running a budget deficit of 7.7% of gross domestic product, its first in a decade and expects a 6.8% deficit next year. Russia's gold and foreign currency reserves, the world's third-largest, stood at $423.4 billion as of Oct. 16, according to the central bank. The gold reserves have risen 14% this year, to 611 tonnes [19 million troy ounces], worth nearly $19 billion [551.67 billion Rubles. As the oil income to Russia has changed the face of government finances there, the rise in the oil price and the future potential rise, is likely to diminish if not eliminated this deficit in time. So there really is no need to sell the family jewels.

Latest Development.

Having looked somewhat foolish in the world's press, Finance Minister Kudrin said, "We will continue to study this issue and the decision may come in the next few days."

We now hear that the amount has dropped to 25 tonnes according to some Finance Ministry Official. Then the plot thickened as the Head of the Ministry's Administrative Department said, "Maybe we will not sell abroad, but how can we refrain from selling altogether, when there is a presidential decree and a sales plan approved by the government?" This seems to muddy the waters even more, for it still does not address the issue of the central bank diversifying its $ reserves into gold to the extent it has.

In September the central bank bought its largest monthly tonnage of gold in the open market, 18.3 tonnes. To say the least, the two policies would appear complimentary, allowing the Depository to sell its gold in one shot without any foreign exchange transaction and allow the Central Bank to benefit from the sale by buying locally rather than carefully in the 'open' market. Dare we forecast that common sense will prevail and say that the Depository will sell the gold to the central bank in line with Putin's stated objectives too? After all it will take a very strong bureaucrat to take on Putin? And he is on record as saying that Russia's gold content of gold and foreign exchange reserves should reflect a 10% gold content. At present they are nowhere near double figures on this front.

It may be possible that not only China but Russia are also currently in talks with the I.M.F. with a view to buying at least a portion, if not all of the remaining 203.3 tonnes of the 403.3 tonnes of gold on offer from them. We expect an announcement shortly.

The Implications for the Gold Price
For Subscribers only! We will be sending out a review of the gold market to Subscribers only, which reveals why the gold price is being held well above $1,000, where it will go next and how the gold market has changed shape due to the changes in overall central bank policies, from selling gold to buying gold.

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