Russia leaves world gold market

Russia has effectively stopped exporting gold on the world market due to the Bank of Russia buying vast quantities of the precious metal for its reserves amid fears of US sanctions, reports. 

According to the Russian Finance Ministry, Russia produced 314,42 tons of gold last year, 2% more than in 2017. 

Direct mining of the precious metal grew by 4% to 264.41 tons, with gold as a by-product of other mining accounting for 15.44 tons and 34.57 tons deriving from secondary processing. 

Only 17 tons were exported as refined gold in 2018, nearly 70% less than in 2017, according to statistics from the Russian State Assay Chamber. 

87% of all gold produced in Russia – 274 tons – was bought by the Bank of Russia, setting an all-time record for its rate of acquisition. 

Whereas at the start of the 2010s, Russia was purchasing an average of 40-50 tons of gold per semester, since the start of the sanction war with the West, it has doubled its rate, buying an average of 100 tons per semester. 

The Central Bank was forced to hurry by a new round of sanctions in April 2018, when all the Russian billionaires on the Forbes list were at risk of international isolation, and a US ban on investing in Russian government debt was looming. 

Russia considers gold “100% protection against legal and political risks” explained Dmitry Tulin, First Deputy Chairman of the Bank of Russia, in August. Unlike foreign currency, one third of which the Bank of Russia keeps as deposits in foreign banks, or securities, which are also in deposits abroad, physical gold ingots cannot be seized. 

According to the World Gold Council, 8% of all mined gold, which equates to 7% of all produced gold (taking into account secondary processing), goes to Russia. 

By buying gold, the Bank of Russia takes about 6% of the world supply off the market, and “to a certain extent supports the quotes on the yellow metal,” observes stock market expert at BCS Dmitry Puchkarev. 

If Russia’s gold were to return to the market, it could bring the price down from the current $1,350 to $1,200 per ounce, the analyst predicts. For the Bank of Russia, which has stockpiled 2,113 tons at a price of $86.9 billion, this would equate to a loss of $9.6 billion. 

However, this scenario is extremely unlikely, Puchkarev notes: the Bank of Russia is not buying gold in order to speculate, but to protect itself against sanctions. “In this case, a drop in the gold price looks like the lesser evil.” 

Although stockpiling gold falls within Russia’s de-dollarization strategy, and last year the Bank of Russia disposed of $80 billion worth of US government bonds, there is actually no connection between these operations: the proceeds from the US bonds were not invested in the precious metal. 

The Bank of Russia is buying gold from local gold miners using monetary emissions, in other words, by printing money, explained Kirill Tremasov, director of the analysis department at Loco-

Invest. The gold ingots are bought with “freshly printed rubles”. “Essentially, these are reserves arising from nothing. Emission in its pure form,” Tremasov observed.

  Russia, Russian Finance Ministry, USA