Huawei is too great a security gamble for 5G networks

There is no proof that the telecoms equipment company helps China to spy but its loyalty is clear

John Gapper

During the Maoist Cultural Revolution in China, a young soldier called Ren Zhengfei was sent to the northeastern city of Liaoyang to help build a clothing factory. The temperature at night was 20 degrees below zero and his diet was sorghum and pickled vegetables, but the French factory equipment was a revelation.

“We learnt from the world’s most advanced technology while living a life that could be seen as primitive,” Mr Ren recalled at a recent media event. He later founded Huawei, the world’s biggest telecoms equipment maker, with 87,000 patents and a $15bn research budget. A lot has changed in China, but Mao Zedong’s party still rules.

That creates a gaping tension, which for decades the US tried to manage in the belief that economic growth would gradually beget political freedom. The charges of fraud and theft of trade secrets laid by the US Department of Justice on Monday against Huawei and Meng Wanzhou, its chief financial officer and Mr Ren’s daughter, show that Donald Trump’s administration has abandoned hope.

Huawei is the casus belli for a broader battle, into which the Ren family has been conscripted. It may have broken US sanctions on Iran and taken technology from Motorola, as the US claims and it denies. It may have committed wire fraud, although that is an all-purpose charge in such cases. Each is small beer compared with the underlying complaint, that Huawei helps China to spy.

“We are like a small sesame seed, stuck in the middle of conflict between two great powers,” Mr Ren said in his media appearance. There is something to that — Huawei wants to continue its expansion, unaffected by the trade and political tussle. But the seed is not neutral; it is planted on the Chinese side.

Despite whispers in private security briefings and accusations from US politicians, there is no clear-cut evidence that China has ever asked Huawei to create a “back door” into western networks through its equipment, and Huawei insists that it would refuse. “We would rather shut Huawei down than do anything that would damage the interests of our customers,”

The problem is structural, not ethical. No matter how trustworthy the Ren family, Huawei would have no choice but to comply if the party knocked on the door. China’s 2017 intelligence law, part of legislation enacted under President Xi Jinping, permits the security apparatus not only to spy on its citizens but to enlist co-operation globally. No would not be an acceptable answer.

China wants to have it both ways: to block US technology companies such as Facebook and Google (and recently Microsoft’s Bing search engine) at home for reasons of security and protectionism, while demanding open access for its information technology enterprises. Zhang Ming, China’s EU ambassador, complains vividly of “slander, coercion, pressure, coercion [and] speculation” against Huawei.

There is a measure of hypocrisy on the US side, of course. Edward Snowden, the US whistleblower, disclosed how its National Security Agency gathered information on national security targets through telecoms networks, and planted back doors in Cisco equipment. But China is not experiencing unequal treatment when the US excludes Huawei from its digital plumbing.

The question is whether US allies should follow, as Australia and New Zealand are doing by excluding Huawei from next generation 5G networks. The US is pressuring the UK, Germany and others to do the same. George W Bush told allies they were “either with us, or against us” in the war on terror, and President Trump is taking a similar line in the new information war.

The UK has allowed Huawei into the periphery of its 3G and 4G networks — the masts, antennas and other radio equipment to transmit mobile data — while keeping it out of the core, where the customer data and sensitive technology mainly resides. The UK government also makes Huawei submit to having hardware and software checked by specialists.

That line is harder to draw in new 5G networks, which may be embedded in factory equipment and autonomous cars. That technology, which Huawei helped to develop, is more like a mesh in which data are widely distributed. “You can interfere with quite a lot of it by interfering with a small amount,” says Alan Woodward, a computer science professor at the University of Surrey.

This brings us back to Liaoyang and the sophisticated machinery that Mr Ren set out to emulate. Like other Chinese companies, Huawei probably took some shortcuts along the way by reverse-engineering rival products, but it has climbed the value chain sufficiently to be a leader now. If it hailed from another country, the case against it for state espionage would fail.

The evidence against the Chinese government is open and shut, though — the party that sent Mr Ren to Liaoyang values its political power above everything else and requires complete loyalty. Taking a security bet on Huawei in 5G networks when its main competitors, Ericsson and Nokia, are European no longer feels sensible. I feel rather sorry for Mr Ren but he is a product of the system.

Doubting The Gods

by: The Heisenberg

- 98% of global assets have posted a positive total return YTD.

- But suddenly, price action looks uninspiring again.

- A lackluster week even as the central bank "pivot" went global suggests market participants doubt monetary policy has the capacity to fully offset key tail risks.
- Equities traded uninspired last week, and that should come as no surprise.
As Deutsche Bank's Aleksandar Kocic put it on Friday evening, "there is a sense of fragile local stability", and that fragility is directly attributable to a lack of visibility around virtually all of the key risks for markets.
News that President Trump will not meet Xi Jinping ahead of the March deadline beyond which tariffs on $200 billion in Chinese goods will more than double (to 25%) derailed sentiment materially on Thursday. While Steve Mnuchin and Bob Lighthizer will travel to Beijing next week to resume trade talks, we've all seen this movie before. Structural sticking points (e.g., IP theft and forced technology transfer) appear intractable and the threat of an executive order banning Chinese telecom equipment from U.S. wireless networks is a stark reminder that the Huawei soap opera is far from over.
Meanwhile, the global recession narrative continues to gather adherents. The economic downturn story never really went away despite the sharp snapback in risk assets to start the year. It's just one body blow after another, with the latest hit coming from The European Commission, which on Thursday cut its growth forecasts for all of the euro-area’s major economies. Italy is of course already in a recession and Germany looks like it might be next.
Finally, the drama inside the Beltway picked up considerably this week as House Intelligence Chairman Adam Schiff moved aggressively forward with a reinvigorated probe into election interference and House Democrats grilled Acting Attorney General Matt Whitaker in a highly contentious hearing on Friday. As a reminder, the more fraught that situation becomes, the higher the likelihood that the debt ceiling will end up getting used as a bargaining chip over the next couple of months. Markets will not be amused if politicians start playing around with America's credit rating (again), especially not at a time when the U.S. is issuing mountains of debt and the nation's biggest creditor ((China)) has pared its holdings for six consecutive months (through November).
Although I went out of my way in December to pound the table on the idea that stocks had overshot economic fundamentals and that a bounce was likely in the cards, part of the rationale for that thesis (as delivered in dozens upon dozens of posts over on my site) was that i) the looming government shutdown didn't yet threaten to spillover into the debt ceiling debate and ii) the 90-day trade truce had just started, meaning it would be at least two months before people would be inclined to sell on every ostensibly negative trade headline again.
At the same time, positioning had undergone a veritable purge, with the Long/Short universe having de-netted/de-grossed materially following the October rout and the systematic crowd still largely sidelined as well. In other words, there was nobody left to sell, especially after mutual fund investors bailed en masse midway through December. The top pane below proxies for the Long/Short crowd's exposure using a moving beta of the HFRX Equity Hedge index to the S&P while the bottom pane is a proxy for vol.-targeting strat exposure.
Around the same time, the S&P's (SPY) traditional beta to the short rate had been restored (see chart below) thanks to the selloff, meaning the Fed had largely succeeded in restriking its "put" and would likely be inclined to step in with something overtly dovish to ensure financial conditions didn't tighten so much that it jeopardized the committee's ability to engineer a "soft landing."
(Deutsche Bank)
All of that argued for a bounce in the new year and what a bounce it was. In fact, it was the best start to a year for global equities since 1987.
You might recall that 2018 was the year that USD "cash" became a viable asset class for the first time since the crisis. Only 9% of assets outperformed US 3m Libor last year. Well, as of this week, 98% of global assets have posted a positive return YTD.
Needless to say, that's in large part attributable to the Fed's dovish pivot and expectations that central banks in general will follow the Fed's lead. Indeed, this week brought fresh evidence to that effect as the RBA's Lowe shifted to a neutral stance and the RBI "shocked" markets with a (politically motivated) rate cut. On Thursday, the BoE's Carney expressed serious concerns about the economic impact of a prospective hard Brexit and you're reminded that last month, the ECB explicitly acknowledged downside risks, opening the door to a new round of TLTROs (targeted long-term refi ops).
For their part, BofAML described the combination as "a central bank blink for the ages" on Thursday.
The question, though, is whether monetary policy has the capacity to cushion markets in the event one or more tail risks are realized.
A persistent worry over the past several years has been that central banks simply haven't normalized policy quick enough, and that when the next downturn finally comes calling, the major CBs will be uncomfortably close to the zero bound (at best) and still mired in negative rates (at worst). Meanwhile, central bank balance sheets remain bloated, ostensibly constraining policymakers' ability to reflate in the event the global economy takes a turn for the worse.

This is the paradox of policy normalization. Suspending market rules in the interest of restoring normal market functioning (which is what central banks did in the wake of the crisis) comes with a tacit obligation to re-emancipate markets at some point in the future. But the longer martial law (if you will) stays in effect, the more atrophied the market becomes. Everyone forgets how things normally work as the exceptional (i.e., ultra-accommodative monetary policy) becomes the "norm".
As central banks' addiction liability accumulates, restoring normal market functioning (and thereby rolling back what amounts to policy protection for the short vol./carry trade in all its various manifestations) becomes an increasingly dangerous proposition. Hence the tendency to push the date of re-emancipation further and further into the future. Of course in doing that, central banks delay the process by which they rebuild their countercyclical ammo (i.e., their capacity to cut rates and expand the balance sheet), thereby risking a scenario where the next downturn comes along and they are constrained in their ability to act. But, again, rebuilding that ammo entails normalizing policy and as we saw in 2018, that normalization process has the potential to itself trigger a downturn if the accompanying weakness in risk assets begins to manifest itself in real economic outcomes (e.g., the wealth effect going into reverse to the detriment of consumer spending, etc.).
This is where we find ourselves now. A recent study by Deutsche Bank looked at what the effect on global growth would be if the tail risks inherent in a trade-related US recession, a no-deal Brexit and/or a policy-induced unwind of all the leverage built up in China were to be realized. Suffice to say the bank's conclusions were not particularly comforting and while the very idea of a "tail risk" means such outcomes are unlikely, the juxtaposition between constrained monetary policy and mounting geopolitical risks is one of the more vexing issues facing markets in 2019.
The ECB has few "good" options when it comes to additional easing and Japan arguably as no options at all, although Kuroda would beg to differ. The Fed, by virtue of being the "first mover" on the normalization front, has more leeway. Officials (both past and present) have made it clear that the next move for US rates could be a hike or a cut (the January statement tipped the same thing), but the market is intently focused on the balance sheet. Obviously, you cannot cut rates and proceed apace with balance sheet runoff. That's a contradiction too glaring for anyone to stomach. Here's what BofAML said about that last month:
We do not believe that the scenario of the Fed continuing with the reserve drain while cutting rates is credible. It is generally inadvisable to drive an automatic car with one foot on the brake and one on the Accelerator.
Given that, and given the "special statement" on balance sheet normalization that accompanied the regular January statement, a tweak to the runoff plan seems like a foregone conclusion at this point.
To be clear, there is virtually no convincing evidence to suggest that runoff has had a material mechanical impact on risk assets. It's true that the total tightening impulse in the current cycle is somewhere on the order of 5.5% (using the total rise off the estimated negative 300bp level the shadow rate hit in 2014), but the best estimates I've seen show the cumulative impact of runoff itself equating to just a little more than 1 (that's one) 25bps rate hike.
Additionally, the term premium (which is where the return of duration to the market should theoretically show up, especially in light of increased Treasury supply) has actually fallen, hitting near record lows in Q4.
Rather, the impact on risk assets from balance sheet runoff seems to be almost entirely psychological, as illustrated rather poignantly in the following table from Goldman which shows that nobody cared about this until the issue was amplified by President Trump's "50 Bs" tweet (what you're looking at are the outsized moves around balance sheet chatter in the grey shaded area):
While the debate about how the balance sheet will evolve is obviously many-sided, one thing seems pretty clear. The Fed will likely try to shorten the average duration of the portfolio. This is a long and winding discussion, but for our purposes here, just note that one advantage would be that such a move would open the door to another Operation Twist later. "The motivation would be to provide greater flexibility to lengthen maturity if warranted by an economic downturn," Goldman wrote earlier this month, in a lengthy piece documenting the likely evolution of QT.
On the left below is the average duration of the Fed’s holdings. On the right, Goldman attempts to show you the asset-purchase equivalent of a new twist based on an initial $3.5 trillion portfolio (the two bars on the left) and also the duration impact of a couple of different combinations of twisting and buying (the two bars on the right).
Clearly, freeing up room for duration extension down the road (by shortening duration now) is desirable. "As a result, we see an eventual deliberate shift toward shorter Treasury maturities— including bills—as likely," Goldman concluded, in their analysis.
That's been echoed by a number of analysts over the course of the last two months.
The overarching point from all of this is that against a backdrop of seemingly permanent political tumult and proliferating concerns about growth, central banks are again pondering the uncomfortable prospect of being forced to reflate the global economy and rescue risk assets.

The fact that stocks went nowhere this week despite the Fed's dovish pivot and clear signs from policymakers (e.g., the RBA's Lowe) that the global bias is no longer towards tighter policy, suggests the market doubts the ability of central banks to offset the myriad headwinds enumerated here at the outset.
That's not necessarily to say market participants doubt the efficacy of monetary policy itself. Rather, the question is more about whether those policies have been exhausted and if they haven't, whether there's a will to push things even further (e.g., to push rates deep into negative territory and/or resort to outright debt monetization).
The next couple of weeks will be key when it comes to getting a read on whether markets are inclined to view central bank dovishness as "sufficient" when it comes to adding risk (i.e., extending the rally) or whether the accommodative policy pivot is viewed as being already priced in after the best January in more than three decades.

miércoles, febrero 13, 2019



Copper Outlook 2019: Supply And Demand

by: Dan Victor, CFA

- Chile's Copper Commission 'Cochilco' just released its 2019 copper forecast a $3.05/lbs representing 14% upside from current levels amid an expected market supply deficit.

- While demand is seen rising 2.4% globally in 2019, half of which is from China, global production may only increase 1.6%.

- Estimated supply deficit for 2019 and 2020 is revised higher from  forecast last year due to to lower than expected production from Grasberg mine in Indonesia, the world's second largest.

- Deceleration of global growth, ongoing trade tensions between U.S. and China, and financial market volatility highlighted as main negative factors slowing recovery of metal prices.

- Price of copper has been increasingly linked to Chinese activity data with rising correlation observed with China PMI since 2016.

iPath DJ-UBS Copper Total Return Sub-Index ETN (OTCPK:OTCPK:JJCTF) tracks an index that reflects the performance of an investment in one futures contract on copper. For stock traders JJCTF, exchange-traded-note provides exposure to market price movements of Copper High Grade futures contract traded on the COMEX. The ETN has an expense ratio of 0.75%. This article highlights 2019 and 2020 global supply and demand forecasts published by the Chilean Commission on Copper (Cochilco) and my view on where the price of copper is headed next.
Data by YCharts

Global Copper Production Forecast

Copper Production Forecast. source: Cochilco/author translation
Preliminary data shows global copper production in 2018 reached 20,636 thousand metric fine tons 'TMFT' up 1.9% from 2017. Chile, with production of 5,845 TMFT represented 28.3% of world total. The 6.2% growth in output from Chile is skewed considering a major mining labor strike going back to 2017 as the comparison period. The world's second-largest copper mine, the Grasberg field in Indonesia also observed work stoppages in 2017 leading to the apparent 20% bump in 2018 production from Indonesia. Supply disruptions have been a theme in recent years.
For 2019 the forecasts consider the combination of the timetable for known mining developments and expected brownfield projects. The Grasberg mine production is forecast to drop nearly 40% as the operation is retooled from open-pit to underground. This represents nearly 1.6% of global 2019 production. In 2018 the mine was officially sold from the Freeport-McMoran (NYSE:FCX) and Rio Tinto PLC (NYSE:RIO) joint venture to the Indonesian government, while Freeport continues as the operator. Grasberg production is expected to only normalize by 2022. This will remain an important monitoring point as any further revision lower to production estimates or extending the timetable to get it operating at capacity will be bullish for copper prices. Copper output growth from Australia is decelerating as new mines came on-line in recent years and no major new mine is expected in 2020.
Separately, higher production from Congo Republic expected to increase 15% in 2019 and its' Tenke copper mine has made the country one of the fastest growing copper mining regions in the world.
Global Copper Demand Forecast
Copper Demand Forecast. source: Cochilco/author translation
In terms of demand, China in 2018 consumed 12,262 TMFT of copper up 4% from 2017 and now representing 52% of world supplies. Global demand increased 0.9% in 2018. Excluding China, global demand would have actually been down about 1%. India is the other rapidly growing copper consumer with demand forecast to grow 12% in 2019 and expected to double by 2026, to a still relatively modest 5% of global demand. Other important countries and regions for copper demand including Europe, U.S., Japan, and South Korea are expected to have relatively flat growth in the coming years.
Global Copper Market Balance Forecast
Copper Market Balance Forecast. source: Cochilco/author translation
Considering new refined-primary copper supply and secondary supplies like inventories and scrap, the table above demonstrates the market balance with demand forecast for 2019 and 2020. The 227 TMFT deficit estimated for 2019 and again 185 TMFT in 2020 represent 3.6 and 3.0 days of consumption globally. In terms of China's demand forecast, the deficit for 2019 gives about a 1% margin of error to the downside that would maintain the market in equilibrium. Demand in China could end up being 1% lower and all else equal the market would still have a marginal deficit.
Cochilco highlights its observation that the price of copper since 2016 has been increasingly driven by changes in Chinese activity, displaying a an increasing correlation with China Manufacturing PMI which its notes as 0.7. If there is any doubt whether Dr. Copper still has a read on the economy, my take is that he must be Chinese.
China Impact on Copper Price. source: Cochilco/author translation
If the Chinese economy begins to materially deteriorate or the slowdown is deeper than expected, I'd expect this scenario to have implications for broader global slowdown. In that case demand would be lower for all countries and Copper could test down to its 2016 low near $2.00/lbs. I am more constructive on China after viewing that their fiscal and monetary stimulus capacity has the firepower necessary to "manage" growth. Chinese GDP is still expected above 5% per year for the medium term which is beyond its copper demand forecasts 2.5% in 2019 and a relatively anemic 1.5% in 2020. I see upside to the demand forecasts which would be supportive to copper prices.
Copper Futures Daily Price History. source:
Copper has traded in a relatively tight trading range for the past half year between approximately $2.85 to the upside and $2.60 as support. I think its going to need a major catalyst to break down or trend higher possibly with a resolution to the U.S. China trade dispute. Risks are balanced at this time with concerns over Chinese demand balanced against tighter supplies.

Eurozone Slowdown Feeds Fears About Faltering Global Growth

The eurozone economy grew at the weakest pace in four years in 2018

By Paul Hannon and Eric Sylvers

Shoppers in Milan on Dec. 27. The drop in Italian consumer confidence weighed on the Christmas shopping season.
Shoppers in Milan on Dec. 27. The drop in Italian consumer confidence weighed on the Christmas shopping season. Photo: Mairo Cinquetti/Zuma Press

The eurozone economy grew at the weakest pace in four years in 2018 as Italy slipped into recession, with a further slowdown likely this year as the currency area faces growing political tensions and the threat of weaker demand for its exports from China and the U.K.

The bloc’s slowdown feeds growing concerns about the strength of the global expansion, which appears to be faltering across a number of major countries and for a variety of reasons.

Earlier in January, China released figures showing growth last year was the slowest in almost three decades. South Korea grew at the slowest pace in six years and Germany the slowest pace in five. Mexico’s economy also cooled, although less sharply.

By contrast, the U.S. economy has been solid, with unemployment holding at a half-century low, although the government shutdown may have sapped growth as 2019 got under way.

Economists expect the eurozone economy to slow further this year and there are a number of potential setbacks that could push the currency area to the brink of stagnation. The U.K. is set to leave the European Union in March, and may do so without a new trade agreement, which could cause severe disruption to eurozone exports.

Furthermore, China’s economy could slow more sharply than expected if a trade dispute with the U.S. isn’t quickly resolved, further weakening its imports from Germany. While Italy’s sales to China are less significant for its economy, Germany is its largest export market.

“When Germany slows down, Italy slows down,” said Marco Valli, an economist at UniCredit Bank in Milan.

The European Union’s statistics agency said Thursday that economic growth in the 19 countries that use the euro was 1.8% last year, down from 2.4% in 2017, which was its strongest performance in a decade. However, there was a slightly pickup in the final three months of 2018, as gross domestic product rose at an annualized rate of 0.9%, compared with 0.6% in the three months through September.

That pickup was aided by Spain, where growth accelerated slightly as the year drew to a close. But the outlook for 2019 is for slower growth, with the German government slashing its growth forecast Wednesday for the year to 1% from 1.8%, pointing to mounting geopolitical and trade risks.

The eurozone economy was hampered by a weakening of exports in 2018, driven by Turkey and the U.K., with Chinese demand also easing.

Closer to home, French President Emmanuel Macron is wrestling with mass protests aimed at derailing his economic-reform plans, while in Germany, holdups at the country’s key automobile factories pushed Europe’s largest economy to the brink of recession in the final six months of last year. 
Figures also released Thursday showed Italy’s economy contracted in the final three months of 2018, the second straight quarter of declining output.

That was partly due to a monthslong standoff between the government and the EU over its plans to increase its budget deficit, which pushed borrowing costs higher and dented business and consumer confidence.

The drop in consumer confidence weighed on the Christmas shopping season, especially for smaller retailers that were already struggling.

“It was a bad year in general and a horrible Christmas season,” said Luciano Lasaracina, who runs a small shop in Milan selling handmade shoes.

He is worried about Italy’s slow growth and the uncertain political situation.

Italy’s economy is still smaller than before the double blow of the financial and sovereign debt crises and that has taken a toll on retailers like Mr. Lasarcina. On Saturdays, Mr. Lasaracina used to have five people working with him in his store and might sell as many as 90 pairs of shoes in a single day. Now it is just him and his son on Saturdays and they work on alternate days during the week.

Things don’t look set to pick up soon with the Italian central bank and the International Monetary Fund recently cutting their 2019 growth forecasts for Italy to 0.6% from 1%.

A decade of meager growth has lessened Europe’s importance for the world economy, but it still accounts for more than 15% of global activity and its slowdown has already had an impact beyond its borders.

The Federal Reserve held its benchmark interest rate steady Wednesday.

The Federal Reserve delivered an about-face Wednesday from its policy stance six weeks earlier, indicating that it was done raising interest rates for now, citing growing risks of a sharp U.S. economic slowdown due to cooling growth in Europe and Asia.

As exports cool, the eurozone is set to be increasingly reliant on spending by domestic consumers and businesses to drive its economic expansion. But confidence has been weakened by political tensions, and they may intensify as 2019 progresses.

Elections for the European Parliament in May are a potential flashpoint, since they are expected to produce gains for antiestablishment parties, increasing uncertainty about future economic policy. Based on opinion polls across the bloc, JP Morganestimates that the share of lawmakers from antiestablishment parties could rise to almost a third of the total, from a fifth now.

That rise in uncertainty may hinder necessary upgrades in tools and equipment: A survey of 12,500 European businesses conducted by the European Investment Bank at the end of 2018 found a big increase in those citing political developments as a deterrent to investment.

—Giovanni Legorano contributed to this article.

Central bank gold-buying reaches half-century high

Russia leads countries shifting reserves from the US dollar

Henry Sanderson

Central banks bought a net $27bn worth of gold last year © Bloomberg

Central bank buying of gold reached its highest levels for almost half a century last year as Russia, Turkey and Kazakhstan boosted purchases to shift their reserves away from the US dollar.

Central banks bought a net $27bn worth of gold, driven by Russia, whose net purchases were the highest on record, according to the World Gold Council, an industry-backed body. Volumes came to 651.5 tonnes, an increase of 74 per cent on the previous year.

The buying reflects continued efforts by emerging market central banks to diversify their large holdings of dollar reserves in the face of rising global trade tensions. The share of central bank currency reserves held in the dollar fell close to a five-year low in the third quarter of 2018, according to the International Monetary Fund.

The purchases helped boost the price of gold in the second half of last year, following a 10 per cent fall in the first half of 2018. Gold prices hit their highest level in eight months on Tuesday at $1,314 a troy ounce.

“A lot of emerging market central banks have had significant dollar exposure; they need to manage that risk through having an allocation to gold,” said Alistair Hewitt, head of market intelligence at the World Gold Council.

Central banks have been adding to their gold holdings since the financial crisis, and now hold about $1.4tn worth of the yellow metal, according to the Official Monetary and Financial Institutions Forum, a London-based think-tank.

The shift towards a multicurrency reserve system will “be accompanied by a period of heightened financial uncertainty, supporting central bank demand for gold,” according to an upcoming report from the OMFIF.

Russia bought 274.3 tonnes of gold last year, its biggest net purchase on record, funded by the sale of its holdings of US Treasuries, according to the WGC. Net sellers included the central banks of Australia, Germany, Sri Lanka, Indonesia and Ukraine, which sold a combined 15.6 tonnes.

Russia’s gold reserves, which at 2,066 tonnes are worth some $87bn, comprise just 18 per cent of its total reserves. Germany, by contrast, has 69 per cent and the US, 74 per cent.

The majority of buying by Russia’s central bank has been from domestic gold production, according to analysts, which allows it to bypass the dollar completely.

“You’ve got the entire structure from mining to refineries there,” said Philip Newman, director of Metals Focus, a consultancy. “It’s relatively straightforward.”

Last year some European central banks also entered the market, with Hungary increasing its gold reserves tenfold in October, to 31.5 tonnes, the highest level in nearly 30 years. Poland also bought 12 tonnes last October.

The year’s net purchases were the highest since America decided to move off the gold standard in 1971. Under that standard, the value of the US dollar was expressed in gold at a congressionally set price of $35 per ounce. Following President Nixon’s decision to sever the link, the dollar’s value was eventually decoupled from gold in 1976.