Vladimir Putin
Russia has the world's fifth largest gold reservesReuters

Russia has increased its gold holdings in recent months as its economy feels the heat from the unresolved crisis in eastern Ukraine.

Amid declining relations with the European Union and the United States that could hurt its substantial dollar and euro reserves, Russia has instead focused on expanding purchases of gold bullion and the Chinese yuan currency.

Since Russia annexed the Black Sea peninsula of Crimea from Ukraine in March, drawing international condemnation and a raft of economic sanctions from Western powers, Russia's gold reserves have soared beyond those of Switzerland and China. Its gold holdings stand at the highest level for more than two decades and are currently the fifth largest reserves in the world.

Its holdings increased to 35.769 million ounces at in August, according to International Monetary Fund data. By the same data, that would mean reserves have almost tripled since 2005.

The latest surge has coincided with a period of economic volatility, with Western powers restricting Russia's access to global financial markets in response to Russia's behaviour in eastern Ukraine. Sanctions have also targeted specific Russian companies and even entire sectors of the economy. A shaky ceasefire between pro-Russian rebels and government forces has held for weeks.

Yet, Moscow's increased spending on gold in 2014 fits in with the country's long-term investment strategy, according to Eugen Weinberg, head of commodities research at Commerzbank AG.

"Russia has been the largest official buyer for years," Weinberg told Bloomberg. "It's part of a long-term strategy of amassing gold reserves and diversifying its foreign-exchange reserves."

Given the geopolitical climate between Russia and the West, analysts believe it is likely that Moscow will cut reserves of euros and dollars, while seeking to boost its yuan currency and gold holdings.

Indeed, Russia's President Vladimir Putin said in May that it was essential for Russia to secure its gold reserves due to the uncertain economic climate.

"For us (Russia and China) it is important to deposit those (gold and currency reserves) in a rational and secure way," he said, adding that both Russia and China were exploring ways to increase the use of national currencies as an alternative to the dollar.