Why did the Russian Ministry of Finance sell 23 tons of gold from the National Welfare Fund

As of April 1, the National Welfare Fund's accounts contained 334.863 tons of gold in anonymized form. This is a decrease from the 358.015 tons of precious metal held as of March 1. The Ministry of Finance reported that 23.15 tons of gold were sold in March as part of liquidity management. The same amount of funds was moved to the illiquid part of the National Welfare Fund. To learn about the Ministry of Finance's sale of gold from the National Welfare Fund, the amount of gold planned to be sold or purchased by the end of 2024, and the resulting consequences.

In order to cover the budget deficit, the Ministry of Finance sold 3.6 tons of gold for the first time in January 2023. An experimental agreement involving the sale of gold and yuan has brought 38.5 billion rubles to the treasury. However, it is important to note that this amount is only a small fraction of the 1.76 trillion ruble deficit incurred in January alone.

It is worth mentioning that federal-scale projects are financed from the National Welfare Fund, which saw 1.1 trillion rubles withdrawn from the state's coffers by the end of 2023. 42% of the assets were allocated to infrastructure projects.
Last year, Russian airlines purchased foreign aircraft worth almost 300 billion rubles from the National Welfare Fund. Previously, the airlines had leased the aircraft. Additionally, 175.4 billion rubles were spent on leasing domestic aircraft on preferential terms. Furthermore, 87 billion rubles were spent on creating affordable rental housing in the Far Eastern Federal District.

In 2023, 116.2 billion rubles will be allocated for the construction of the Kazan-Ekaterinburg highway, an important infrastructure facility. The development of the railway infrastructure of the central customs administration was financed with 86 billion rubles. Additionally, 83 billion rubles were spent on the implementation of the Territory Development Fund program, which involves financing housing and communal services. An additional 7.9 billion rubles was allocated for the construction of the M-11 Neva highway, which bypasses the city of Tver. The Northern Capital metro also acquired rolling stock for 12.4 billion rubles.
According to Yulia Makarenko, Deputy Director of the Development Banking Institute, the National Welfare Fund serves its intended purpose by providing funds for the state's most pressing needs.
All of the above changes will undoubtedly improve the lives of millions of Russians, either directly, such as through the improvement of transport infrastructure or the regional development program, or indirectly. Therefore, the Ust-Luga project will create several hundred and thousand jobs, improve logistics in the region, and increase tax revenue for both regional and federal budgets.

In 2024, it is planned to withdraw approximately 880 billion rubles from the National Welfare Fund. Thus, according to the surveyed experts, it is highly probable that the withdrawal of funds in the form of yuan or gold will continue until the end of 2024.

However, these will be planned seizures. Yulia Makarenko emphasized that the sale of assets will be carried out with consideration to the current ruble exchange rate and world gold prices, ensuring that they are sold on the most favourable terms for Russia.

The requests for information on plans to sell the gold reserves of the National Welfare Fund were not answered by the Ministry of Finance of the Russian Federation or the Central Bank.

By selling over 23 tons of gold in March, the Ministry of Finance was able to address the issue of financing the budget deficit. However, all liquid assets are currently in yuan or gold. According to Alexander Abramov, head of the laboratory for analysis of institutions and financial markets at the Institute of Applied Economic Research of the Presidential Academy, the department's actions were effective. According to the expert, selling gold was a necessary but reasonable investment decision.

Currently, gold is at a historically high level of approximately $2,300 per troy ounce. Therefore, the sale was profitable for Russia as a seller.

The Ministry of Finance regularly purchases both foreign currency and gold in different directions. Thus, the department plans to purchase these types of assets most intensively from April 5 to May 7, spending 6.5 billion rubles daily. This is 2.4 times more than the previous month from March 7 to April 4, when the department purchased gold and foreign currency for 73.2 billion rubles, or 3.7 billion rubles per day. The department expects to earn 128.3 billion rubles in profit by the end of April 2024, which is more than the 107 billion rubles earned in March.

The reason for this increase is the additional oil and gas income received from recent transactions. The department expects to earn 128.3 billion rubles in profit by the end of April 2024, which is more than the 107 billion rubles earned in March.
Conversely, to prevent excessive weakening or strengthening of the ruble within the framework of the budget rule, the Bank of Russia sells part of the foreign currency, usually yuan, in the amount of 600 million rubles per day from April 5 to May 7, depending on the volume of transactions carried out by the Ministry of Finance.
According to Ekaterina Kosareva, managing partner of the analytical agency VMT Consult, these operations are not related to the sale of gold and foreign currency from the National Welfare Fund.

The first operation is aimed at implementing federal-scale projects, while the second is intended for Russian companies to generate additional income from the sale of oil and petroleum products.

According to the expert, purchasing assets in the form of gold and foreign currency is a necessary measure to diversify and accumulate federal reserves.

She added that despite the fact that part of the Central Bank's funds was frozen by foreign states, gold proved to be the most protective asset.

The analyst also emphasized that the 23 tons of gold were simply an asset that moved as a result of a financial transaction, which went from liquid to illiquid.