US Sanctions Hard to Freeze Russia’s Gold Warehouse

The United States is limiting Russia’s ability to sell its gold reserves and raise money in the latest attempt to pressure Moscow over its military campaign in Ukraine. The US Treasury Department announced on March 24 that any gold transactions involving the Central Bank of Russia, the Russian National Finance Fund or the Russian Ministry of Finance are prohibited under sanctions.

The Central Bank of Russia holds 2,300 tonnes of gold, worth about $140 billion, according to the World Gold Council. It is the fifth largest gold reserve in the world, which has been steadily accumulating in recent years.

Experts say Russia could use gold to support its currency. One way to help them do this is to exchange gold for a more liquid foreign exchange that is not subject to existing Western sanctions over the Ukraine crisis. Another way is to sell gold bullion through gold markets and dealers. Gold can also be used to purchase goods and services from well-intentioned sellers.

After the US sanctions decision, Russia’s attempts to sell gold will become more difficult, but not impossible, commentators Amrith Ramkumar and Caitlin Ostroff of WSJ recognize.

Venezuela used to move some of its gold through countries like Turkey or Uganda to evade US sanctions. Russia could fully try the same way, selling gold to countries like China, India, Kazakhstan, or through intermediaries.

Russia can also sell large amounts of gold that has long been refined and is not part of the country’s official reserves. Using gold as collateral for a loan is another possible option.

“They’re definitely going to find a way to keep selling gold,” said Jeffrey Christian, senior officer at US precious metals research and consulting firm CPM Group. “Gold has been loved by people for thousands of years, in part because of its secrecy.”

Most of the world’s gold is tracked by trading centers in London and New York, overseen by the London Gold and Silver Market Association (LBMA) and the CME Group. The LBMA and CME recently removed six Russian precious metal refiners from their accredited lists, preventing Russian gold from entering the market. Only standard gold from approved refineries is held in LBMA and CME storage, with each bullion strictly monitored and fully documented.

“Most people want to get their metal from an authorized distillery or someone who is certified,” said Suki Cooper, managing director of precious metals research at Standard Chartered.

According to some analysts, gold outside of the above official channels has almost no information other than a certificate or symbol indicating where it was originally refined. This means there are still channels for Russia to sell gold and earn foreign currency.

Gold is not Russia’s only source of foreign exchange. The country continues to collect large amounts of dollars and euros by selling oil and gas to Europe, which relies heavily on Russian energy.

Following Western sanctions, Moscow ordered oil and gas exporters to sell 80% of their foreign currency earnings for rubles as a way to create demand for the local currency.

Oksana Lukicheva, an analyst at consultancy Open Investments, said that given the fact that most of Russia’s 2,300 tonnes of gold is stored in vaults in the country, Western authorities will not be able to touch it after US sanctions.

However, Russia will also have to face the fact that they will not be able to legally sell gold on world markets, according to Denis Raksha, general manager of Russia-based specialist consulting firm Neocon.

“Most of that gold will stay in Russia, the problem isn’t that someone will come to confiscate it, or freeze it elsewhere. The problem is that Russia won’t be able to sell the gold on the main street outside. No. The central bank of any country can buy it. gold from Russia without being subject to secondary US sanctions,” said Raksha.

Vu Hoang (Based on AP, WSJ)

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