Russia is rethinking what counts as ahaven asset as it duels with the United States on trade.Althoughinvestors usually seek safety in U.S. debt, Russia cut its holdingsof Treasuries nearly in half in April as Washington slapped theharshest sanctions to date on a selection of Russian companies andindividuals. In a shift Danske Bank A/S attributed to a deepening“geopolitical standoff,” Russia is instead keeping up its purchasesof gold.“Some people ask whether the Russian central bank sold themto support the ruble in April, but it's about changing allocationas reserves continue to grow,” said Vladimir Miklashevsky, a senioreconomist at Danske Bank in Helsinki. “Rising U.S. yields havefueled the sell-off.”Russia sold $47.4 billion of Treasuries inApril, more than any other major foreign holder of the U.S.securities, even as its reserves grew on the back of rising oilprices. Its stockpile of $48.7 billion is down from a 2010 peak ofover $176 billion, ranking it only 22nd worldwide, according todata released Friday.By contrast, the central bank keeps adding toits gold hoard, bringing the share of bullion in its internationalreserves to the highest of President Vladimir Putin's 18 years inpower. The Bank of Russia said on Wednesday that its holdings ofgold rose by 1 percent in May to 62 million troy ounces, valuingthem at $80.5 billion. In May, Governor Elvira Nabiullina said goldpurchases help diversify reserves.With the geopolitical stakes sohigh, Russia may not be overly concerned about returns on itsinvestment. Still, gold has underperformed U.S. debt so far thisyear, losing over 2 percent as the outlook for higher borrowingcosts dimmed prospects for the metal, which doesn't pay interest.Meanwhile, after handing investors positive returns for the pastfour years straight, Treasuries have generated a loss of 1.4percent in 2018.Considering the size of Russia's holdings, its movehardly made a dent in the $14.9 trillion Treasuries market. Abigger question is whether China—which owned $1.18 trillion of U.S.debt as of April 30—will follow its neighbor's lead.“China could dothe same if the trade war gets too bad,” Miklashevsky said. “Thattool has been used before. In Russia, it's more about keeping themoney safe from sanctions because they need it for a rainyday.”

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