Russian Central banks bought 93 tonnes of gold in the quarter
Russia accounted for 59 per cent of net gold purchases by central banks in the third quarter of 2014, according to data from the World Gold Council.
Russia, Kazakhstan and Azerbaijan have all taken advantage of a subdued gold market, for which demand eased by 2 per cent in the quarter. The WGC has attributed this to an increasing effort to diversify away from the US dollar.
"The IMF pruned its growth forecasts in October, recognising that increased downside risks are prevalent: larger gold allocations would provide a buffer in the face of a potential slowdown," the report said.
Ever since the financial crisis Vladimir Putin's government has been increasing its gold holdings.
UBS resources and mining analyst Jo Battershill said the third quarter results were not surprising.
"If you were to go back over the last four to five years, all those countries have been pretty consistent buyers in that period," he said.
"There is a genuine argument for a lot of countries to diversify out of US dollar dominated foreign reserve holdings. It's not a bad thing given the volatility we've seen in currency markets."
entral banks bought 93 tonnes of gold in the quarter, and while it was 9 per cent lower year-on-year, it was the 15th consecutive quarter that banks were net purchasers of gold.
"Central banks don't think in short-term windows, they are thinking long-term," Mr Battershill said.
"We see lots of comments in the media about Russia potentially starting another Cold War, and if that is something genuinely occurring I think having a bit of other diversification would be deemed a logical outcome."
In afternoon trade on Friday gold was at $1161.87 an ounce, down 16 per cent from its 2014 highs.
Other long-term sources of demand, like jewellery, investment and technology remained strong through the quarter, reinforcing the "self-balancing nature of the gold market", said Marcus Grubb, managing director of investment strategy at WGC.
"With recycling at a seven-year low and mine supply looking increasingly likely to be constrained in the future the outlook for physical gold demand remains strong," he said.
Demand for Indian jewellery shone bright through the quarter, jumping 60 per cent. Positive investor behaviour in India has also been linked to support for the recently elected Prime Minister Narendra Modhi.
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"This provided an encouraging backdrop for gold demand. A weakening of the rupee gold price during August and September also supported gold demand to an extent," the WGC report said.
In China demand was on par with figures from 2012, with users from the mainland accounting for the majority of demand.
The WGC found that year-on-year decline in bar and coin investment was closely linked to the Asian markets and in particular China, "whose investors were responsible for hoovering up vast quantities of gold bars and coins during the first three quarters of 2013."
Mr Battershill said the actions of both Russia and China over the last two to three years is indicative of where the longer-term trend is going.
"Russia is commodities rich, China is relatively commodities poor. So given the countries border each other there is a natural trade that should occur between those countries, and at the moment all those commodities are priced in US dollars," he said.
"I think the ongoing trend will be for further diversification from US-dominated foreign currencies. You just feel there are some odd moves, fairly significant trades on the paper gold market that would lead you to believe it's an interesting market."
