Russia manages to find a way to sell gold

According to Bloombergthe gold industry of Russia which has markets mainly in Europe and the US…, is now hindered from operating due to embargoes.

Russian miners have often preferred to sell gold to a few local state-run banks, such as VTB PJSC and Otkritie Bank, followed by export, or until recent years is sold to the Central Bank.

Every year, Russia exports 340 tons of mined gold, worth about 20 billion USD. (Artwork – Photo: Bloomberg)

However, strict Western sanctions will make Russia’s gold industry significantly affected. Although the Central Bank of Russia said it will buy gold again after a 2-year pause, it will not buy as much as before.

Every year, Russia exports 340 tons of mined gold, worth about 20 billion USD. There are very few banks outside of sanctions that are capable of handling that gold. Therefore, increasing exports to China and the Middle East are options to be considered.

Polymetal International is looking to tap into direct export rights, with sales opportunities to the United Arab Emirates (UAE) and China. Several other major miners have also started negotiations with companies based in China and the UAE.

Russia’s Central Bank was once the largest sovereign gold buyer, collecting almost all of the country’s mining output before halting it in early 2020. The bank’s pledge to start buying back will help free up a portion of the supply that cannot be exported.

However, the Central Bank of Russia will only limit the price to 5,000 rubles/gram, approximately $1,880/ounce at the current exchange rate and lower than the international market price.

In addition, the domestic retail market can also open up new business potential. The Russian government has removed the value-added tax on domestic gold purchases and retails after the situation in Ukraine became complicated.

“We are seeing a significant increase in demand in the retail gold sector. Banks are willing to pay at international benchmark prices,” a Polymetal spokesperson said.

Although the price of gold does not tend to react to supply and demand fundamentals in the same way as other commodities such as base metals, energy or agriculture, the forecast for Russia’s export outlook decrease will lead to a decrease in global supply.

“The gold market is usually in surplus. If Russia’s domestic demand increases, the international market will lose a supply. Gold prices may return to a more balanced position for the first time since 2015.” Suki Cooper, an analyst at financial services firm Standard Chartered.

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