Aug 5, 2022
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In the sanctions war, gold should not be sold, but bought!

Recommendations for restoring order on the “golden front” of Russia’s war with the collective West

For two years (2020-2021), 660.7 tons of precious metal were mined in the country, and gold exports amounted to 94.15% of all metal production. This has never happened in the history of the Russian state. At least for the period for which statistics are available. Before that, the bulk of the gold mined in the country was purchased by the Bank of Russia to replenish the international (gold and foreign exchange) reserves of the Russian Federation, but in March 2020, the Central Bank announced that it would stop purchasing the precious metal from April 1.

Gold as a strategic resource was sent outside the country, mainly to the UK. In 2020, 290 tons of precious metal were sent to the islands of Foggy Albion, in 2021 – 266 tons of precious metal. Thanks to the collective West, which, by freezing the gold and foreign exchange reserves of the Russian Federation, tried to stop the insane squandering of this strategic resource.

Firstlysanctions were imposed on those Russian banks that have traditionally been involved in the sale of gold abroad (VTB, Gazprombank, Sovcombank, Sberbank, etc.).

SecondlyThe London Bullion Market Association (LBMA) announced on March 7 that it was removing all six Russian refineries from its list of accredited companies. Their products (standard gold bars) were stripped of their status good Delivery.

Thirdlysanctions were imposed that banned the purchase of the precious metal from Russia. In March, Washington and London imposed a ban on gold held in Russia’s international reserves. At the end of June, the US banned the import of any gold from Russia. In early July, Japan announced a gold embargo. In July, such a ban was introduced by the European Union as part of the seventh package of sanctions. The United Kingdom joined on 21 July. On August 3, Switzerland joined the EU gold sanctions. A situation has developed that is very reminiscent of the golden blockade that the West declared almost a century ago (in 1925) to the Soviet Union.

In March, the Bank of Russia announced the resumption of purchases of gold for reserves. One can only guess about these purchases, since the Central Bank, referring to the sanctions war, closed the information on gold reserves. However, according to a number of indirect signs, the purchases are very feeble.

Apparently, Russian gold miners have a very difficult life ahead of them. True, at the beginning of March of this year, they finally managed to cancel the 20% VAT on the purchase of gold by individuals on the Russian market. There was a hope that citizens would buy part of the gold produced, but, according to the most optimistic estimates, no more than 50 tons of gold will be purchased by “physicists” this year.

So, the annual gold production in Russia is at least 300 tons. “Physicists” will buy 50 tons. The Central Bank, judging by its mood, is about the same. And what to do with the remaining 200 tons?

Experts say that Russian gold miners are intensively looking for “holes” in the sanctions curtain built by the collective West. In this search they made a U-turn to the east. At the end of last year, the following countries became the main importers of the precious metal (in brackets – the share in world gold imports,%): Switzerland (23.4); India (14.1); UK (13.6); China (11.1); Hong Kong (7.4); Singapore (3.7); US (3.5); Germany (2.8); United Arab Emirates (2.7); Thailand (2.1); Italy (1.9); Canada (1.7); Cambodia (1.5); Turkey (1.4); Austria (1.3). It is easy to guess that the search for alternative markets for gold is carried out in countries that are not included in the list of unfriendly states. More specifically, in China, India, the United Arab Emirates, Cambodia, Turkey and several other countries. However, while this is only a search, it has not come to real deliveries.

At the end of July, there was information that Russian gold miners faced an export ban from the Federal Assay Office. This organization does not issue permits for transactions due to the fact that Russian gold is offered at a large discount. And without a discount today, it is difficult for Russian miners of any resource to sell anything abroad. For example, oil deliveries from Russia to India come at almost a 30 percent discount.

However, gold miners complain that the Bank of Russia agrees to buy gold from them also at a large discount in relation to world prices. Instead of a price premium, which should have stimulated the development of the country’s “currency shop”, we see that the Central Bank is stifling the extraction of the precious metal in the country with its discounts.

In general, Russia’s “currency shop” is driven into a complete dead end. On the one hand, it is the collective West with its golden sanctions. On the other hand, it is the monetary authorities that are boycotting the purchase of gold for reserves.

By the way, in a normal civilized state, gold reserves should be administered not by the Central Bank, but by the Ministry of Finance. So, by the way, it was in the USSR. And so, by the way, today is the case with the US gold reserve (more than 8,000 tons of US gold reserves are on the balance sheet of the Treasury).

It would seem that the Russian Ministry of Finance now has the opportunity to create its own gold reserves. Last year, it was decided to add gold to the National Wealth Fund (NWF), which is administered by the Ministry of Finance, in addition to foreign currencies. In early February, the National Welfare Fund, according to the Ministry of Finance, had 405.7 tons of precious metal. Since the end of February, the Ministry of Finance has ceased to fill the NWF with currencies, as the risk of their freezing and even confiscation by the collective West has sharply increased. But, probably, it is possible and necessary to increase the gold reserves of the Ministry of Finance, but for some reason the ministry does not do this. On August 3, the website of the Ministry of Finance published the following information: in August, the expected volume of additional oil and gas revenues of the federal budget, associated with the excess of the actual oil price over the base level, is projected at 359.5 billion rubles. Thus, the total amount of funds from additional oil and gas revenues that the Ministry of Finance, according to the budget rule, should have directed to the purchase of gold and foreign currency, is 284.8 billion rubles. At the same time, the Ministry of Finance recalls that due to the temporary suspension for the current year of certain provisions of the budget rules related to the use of additional oil and gas revenues from the federal budget, the purchase of foreign currency and gold at the expense of these funds will not be made.

With the purchase of foreign currency, it is clear: it is “toxic”, it can be frozen at any time. But why is the purchase of gold stopped? The mildest thing I can say here is that this is a giveaway game by the Russian Ministry of Finance in the conditions of the sanctions war.

Now let’s move on to Neglinka (the official address of the Central Bank). They recently published estimates of the balance of payments for the first half of 2022. The positive trade balance in the first half of the year is impressive – $ 158.4 billion. This “achievement” was obtained due to the fact that the export of goods and services twice exceeded their import. That is, not even a currency rain fell on Russia, but a currency shower. At the end of the year, the Bank of Russia predicts that exports will exceed imports by $277 billion. This is a “toxic” currency by 70-80 percent, that is, a poisonous currency shower fell on our heads.

Can we protect ourselves from it? At least partially we can. Let me tell you about such a measure as the purchase of gold on the world market. Today, we are doing the opposite: we are trying to sell gold on the world market, receiving a toxic currency for it. And the excesses of toxic currency should be converted into a precious metal, through which to increase Russia’s gold reserves.

You can learn from yourself. In the late 1970s, after the demonetization of gold was announced at the Jamaica Conference in 1976, the price of the precious metal on the world market began to skyrocket. This put the US dollar at risk. The US decided to bring down the price of gold by intervening from the gold reserve. More than 200 tons of metal were sold. Washington forced the IMF to do the same operation. At least 200 more tons were sold. A significant part of this gold was bought up by the Soviet Union through shell companies. You can read about it in my bookGold in the economy and politics of Russia» (M.: Ankil, 2009).

An even clearer example is China. For many years, it has been ranked first in the world in the production of precious metal (annual production is 350-500 tons). And in China, the mined metal is not exported (there is an unspoken ban on the export of metal). Moreover, the PRC imports the precious metal, and in volumes exceeding its annual production. In some years, gold imports exceeded 1,000 tons. Last year, China imported 759 tons of precious metal worth $47.3 billion. The main suppliers of gold to China were (listed in descending order of supply): Switzerland, Australia, South Africa, Hong Kong, Singapore, Canada, Japan, Germany, Russia, UAE, Tajikistan, Taiwan, South Korea, Uzbekistan, Italy.

A number of other leading gold-mining countries are also major importers of the precious metal. Thus, the United States, which was in 4th place in the ranking of countries in terms of gold production last year (180 tons), imported 250 tons of the precious metal in 2021. Canada ranked 5th (170 tons), while importing 282 tons. I do not rule out that part of the metal purchased by the United States and Canada fell on Russian gold (its purchases were made on the London market).

Recommendations arise to restore order on the “golden front” of Russia’s war with the collective West.

  1. A complete ban on the export of gold from the Russian Federation.
  2. The adoption by the monetary authorities of the Russian Federation of measures for guaranteed purchases of gold mined within the country in order to further increase the gold reserve.
  3. Organization of purchases of gold on the world market at the expense of Russia’s huge stocks of “toxic” currency; direction of the purchased metal to the gold reserve of the Russian Federation.

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