Russia was placed as the second largest gold producer after China in 2021 with a heavy lifting of 330 Metric tonnes. Good news for the world market where gold is trading at US$ 1863 per ounce. Bad news is Russia seemingly, could sail through rough waters in the international financial sanctions for a decade to come. It is gold war finally!
But the devil is in the details. Expecting Russia to fold up on the face of severest sanctions regime imposed upon her by a gang of 40 countries led by USA the west got a shock treatment. Russia rubbished all and sundry by pole vaulting over the bar without knocking the uprights but bashing the sanctions originators.
Springing a surprise, Putin played a master strategy in pegging Ruble to the gold by fixing one gram of gold sold at 5,000 Rubles and an ounce of gold at 160,000 Rubles. (Read) At the same time the sale of natural gas was tied to Ruble only. All buyers need to first buy Rubles either from Russian Central Bank depositing equivalent gold or from accredited Russian banks that are not subject to sanctions in importing countries.
The bold move was backed by gold reserves currently in possession by Russia and stored in Russian Central Bank safe vaults along with depositories in St. Petersburg and Yekaterinburg. The exact volume and percentage held in these three locations are not revealed. Gold analysts estimate that Russia ranks fifth in terms of gold reserves amounting to 2,300 Mt. At any time Russia has the capacity and willingness to liquidate portion of gold as emergency measure. This part alone is now estimated at US$ 630 billion.
Russia also has gold reserves spread amongst several countries. It goes in a combination of home currency plus gold reserves in depositories in USA, EU and China. Although exact percentage is not available it is presumed the larger part is in gold. China tops the list with 14% of Russian reserves whereas EU countries put together account for 32% while USA has a meagre 6%. Balance is spread in banks far and wide in Asia, Africa and Latin America. At max the risk factor of host countries expropriating Russian reserves is just below 38% of total global reserves.
A big plus is the domestic production that aggregates the gold reserve position. Out of its current gold production only a marginal portion was exported. Still, this amount provides more than US$ 18 billion per annum and posits Russia as the 4th largest gold exporter globally. After hostilities began in Ukraine, Russia has banned gold exports to countries that are in her unfriendly list including America & EU but allowing exceptions to friendly countries. Gold analysts estimate that by end of this decade gold production in Russia would range 550 to 600 Mt per annum and Russia usurping the first place from China.
Then there is a dark horse: the Russian oligarchs. The crux of the matter is that almost all these oligarchs are Putin lovers and the extent of their dealing in financial arena including gold holdings is wrapped in secrecy. At any time the call is made more gold would flow into Russia to boost the war chest.
By engaging with Russia in a proxy war in Ukraine, the west has combined the new cold war with a gold war that certainly favours Russia!
Cheers!
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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