The sanctions war against Russia has revealed many of our competitive advantages
Today, the monetary authorities of Russia are offering everyone who possesses toxic currencies (US dollars, euros, British pounds sterling, Japanese yen, Australian, Canadian and Singaporean dollars) to get rid of them as quickly as possible. It is proposed to be friends with the currencies of those countries that are not included in the list of “unfriendly states”, which are significant trade and economic partners for Russia. More specifically, these are the Chinese yuan, the Indian rupee, the Turkish lira, the UAE dirham, the Belarusian ruble, the Kazakh tenge and a number of others. I have already noted that such “friendly” currencies have their drawbacks, you should not get too carried away with their accumulation. Russia should have only two truly friendly currencies: the Russian ruble and gold.
Although in 1976, at the Jamaica International Monetary and Financial Conference, gold was demoted from the currency into an exchange commodity (the so-called “demonetization of gold”), however, it still remains money. With all the functions of money: measure of value, medium of exchange, means of payment and store of value. Today, when the US dollar, euro and other candy wrappers coming off the printing presses of the world’s leading central banks are on the verge of completely losing any functions of money, the competitive advantages of gold as a currency have become undeniable.
The sanctions war of the collective West against Russia has revealed many of our competitive advantages. We are talking about our energy resources, our non-energy minerals, our agriculture with its grain exports, etc. And then there is gold, in terms of geological reserves of which we are consistently in 2nd or 3rd place in the world ranking. Canada is ahead, somewhere nearby – the USA and Australia. According to the last five years, Russia accounts for 9-10% of the reserves of the yellow metal. We are in second place in the world in the extraction of the precious metal. In 2020, the first place was taken by China – 368.3 tons – about 11% of the total world production. Russia produced 331.1 tons that year. In third place was Australia – 327.8 tons. The USA (190.2 tons) and Canada (170.5 tons) follow with a fairly large distance from the leading three.
Many Central Banks in the past decade, with sufficient preemption, began to replace US dollars and euros with the yellow metal. The Bank of Russia also increased its purchases of gold in international reserves, increasing the share of the precious metal in gold and foreign exchange reserves to about 20 percent by the beginning of 2020 (it was only 2.5% at the beginning of 2008). And yet: for unknown reasons, from April 1, 2020, the Bank of Russia stopped purchasing gold mined in the country. This “golden intermission” lasted almost two years (together with the “pandemic” – until the start of the sanctions war against Russia). No real gold market has been created inside the country, and almost everything mined in Russia in 2020-2021. gold miners of the metal began to export abroad. A total of 630 tons were exported, the lion’s share of the metal was sent to England.
The Central Bank of Russia lifted its moratorium on the purchase of gold only on February 28, when it became clear that the freezing of foreign exchange reserves of the Russian Federation had begun. Russian gold miners (specifically, the Union of Gold Producers of Russia) a year before called on the Bank of Russia to resume purchases of the precious metal, and offered to increase its share in international reserves to at least 25%. And they reminded the Bank of Russia that gold is the only asset in international reserves that is 100% immune from any sanctions.
If the Bank of Russia, instead of dollars or euros, had purchased the annual production of the precious metal, 15-18 billion dollars would have been saved from freezing.
So, since the last day of winter, the Bank of Russia has restored gold purchases. However, already on March 15, he announced that he was suspending purchases, giving, as he noted, the opportunity to satisfy the demand for the yellow metal from individuals. How the Bank of Russia began to act further is a dark question. Some citizens have indeed increased their purchases of gold, but not so much as to prevent the Bank of Russia from replenishing its stock of the precious metal. According to expert estimates, the purchase of gold coins and ingots by citizens could account for 10-15% of current gold production. The Bank of Russia announced in March that it was ceasing to publish data on its gold reserves and transactions with the precious metal, but continued to publish data on the total amount of international (gold and foreign exchange) reserves on a weekly basis.
Let me remind you that also from February 28, the Bank of Russia stopped all operations with foreign currencies. The Central Bank website has a table of daily transactions for the purchase and sale of foreign currency by the Bank of Russia. For all days since the end of February, there are dashes in this table (no transactions). However, the value of international reserves changes every week. Here are the figures for the last month (billion dollars):
Published every week, the figure of international reserves is accompanied by a short commentary. For example, here is a comment (https://www.cbr.ru/statistics/macro_itm/svs/int-res/) to the last figure (dated September 2): “The volume of international reserves as of September 2 amounted to 561.9 billion US dollars, having decreased over the week by 4.9 billion US dollars, or 0.9%, under the influence of a negative revaluation“. This wording means that the Bank of Russia did not conduct any transactions for the sale or purchase of currency and gold during the reporting week. I specially emphasize: not only currencies, but also gold. Didn’t sell or buy. Similar wording for previous weeks. The conclusion is obvious: the moratorium of the Bank of Russia on the purchase of gold continues to operate. And this at a time when an intense sanctions war is being waged against Russia!
True, positive shifts in the gold market have occurred for individuals (citizens of Russia). In March, the 20% VAT was abolished when citizens purchase gold bars from commercial banks. Prior to this, if such an ingot was returned to the bank by a citizen, he could receive money for it, but VAT was not refunded. In previous years, the VAT was a serious obstacle to people being able to replace their hard currency holdings with gold. Sales to “physicists” amounted to 3-4 tons per year.
After the abolition of VAT, Sberbank customers purchased 10.9 tons of gold bars in five months. In mid-April, VTB announced the sale of 2 tons of gold bullion to customers, but the bank did not disclose more recent data. PSB has sold 1 ton of gold bars in the last four months. According to World Gold Councilin the first half of the year, the volume of purchases by Russians of bars and coins, that is, physical gold, amounted to 12 tons; it grew on an annual basis by four and a half times. According to experts, demand from citizens for the precious metal this year may increase by an order of magnitude compared to the previous year and reach 50 tons (approximately 15% of annual production).
Between individuals who want to buy physical gold and gold miners there is an intermediary – a commercial bank, which, by charging commissions and setting a premium on the price, makes the metal more expensive for “physicists”. In early September, a bill was submitted to the Duma, according to which individuals in the Russian Federation may be allowed to buy precious metal bars without VAT not only from banks, but also directly from refineries (factories that process gold mined by subsoil users into standard and measured bars) and from an organization that manufactures banknotes and coins of the Bank of Russia, i.e. Goznak.
At the moment, even the abolition of VAT and the increased demand of “physicists” for gold, while maintaining the actual moratorium on the purchase of gold by the Bank of Russia, is forcing Russian gold miners to look for other ways to sell their products. Alas, this export of precious metal abroad.
Yes, the collective West tried (besides its desire) to help Russia keep its gold inside the country. I mean, there have been bans on precious metal imports from Russia by the United States, Canada, the UK, Australia, Japan and the European Union. Russian gold miners find themselves between a rock and a hard place. The hammer is the golden sanctions of the collective West. The anvil is the Russian monetary authorities who are unwilling to buy the gold mined in the country. And not only the Central Bank, but also the Ministry of Finance. By the way, in the Soviet Union, the gold reserve was formed not by the State Bank, but by the Ministry of Finance. And now the Russian Ministry of Finance is buying homeopathic doses of the precious metal.
On September 6, the Russian media reported as a sensation that the Gokhran of Russia, subordinate to the Ministry of Finance, announced its interest in acquiring as much as 1,220 kg of refined gold in standard bars for the State Fund of Precious Metals and Precious Stones of the Russian Federation. This is just over 0.3% of the annual production of the precious metal in our country. The total amount of gold reserves in the State Fund is classified; in my estimation, it is very insignificant.
Gold miners are trying to ensure the sale of their products that are not in demand on the Russian market through “gray” (almost smuggling) schemes for the supply of precious metal even to those countries that have imposed gold sanctions against Russia. For this, in particular, are used United Arab Emirates There are also plans to supply gold to China and India.
As for the export of gold outside of Russia, this information is also classified today. True, we learn something from foreign customs statistics. For example, China’s General Administration of Customs reported last month that China’s gold imports from Russia reached $108.8 million in July 2022, 8.6 times more than in June ($12.7 million), and 50 times more than in July last year ($2.2 million). Experts suggest that this is only the beginning.
In conclusion, I note that the problems of Russian gold were discussed at the Eastern Economic Forum on September 5-8. The Trans-Ural regions of the Russian Federation, where gold mining is highly developed, were very well represented there. So, the governor of the Magadan region Sergey Nosov made no secret of the fact that miners in the region were accustomed to supplying gold abroad. And the sanctions have created a serious marketing problem. Magadan gold miners would be happy to supply the precious metal to the Bank of Russia, but the conditions are such that it is not profitable for them. As it became clear from the governor’s speech, the Bank of Russia decided to simply boycott gold with the help of purchase prices with a good discount for itself. And for small and medium-sized companies, bureaucratic obstacles in obtaining licenses for the export of the precious metal are a serious problem.
The Governor of the Amur Region spoke about the same Vasily Orlov: selling gold to the Central Bank is at a loss, and access to the foreign market is difficult due to external sanctions and internal bureaucracy.
Gold mining, they said in the Soviet Union, is the currency shop of the country. Its importance sharply increases in the conditions of war. Alas, there are all signs that Russia’s “foreign exchange shop” is now in a very difficult position.
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