The $140 billion question: Can Russia sell off its huge pile of gold?

By Eddie Spence,

Russia has spent years building up a giant reserve of gold, an asset central banks can turn to in a crisis. But any attempt to sell him will now be a challenge when he needs it most.
The Bank of Russia has nearly sixfold its gold reserves since the mid-2000s, creating the fifth-largest stock in the world, valued at around $140 billion. It’s the type of asset he could sell to prop up the rouble, which has plunged as global economies isolate Russia following its invasion of Ukraine.

It will be difficult. The sanctions ban US, UK and European Union institutions from doing business with Russia’s central bank. Traders and banks are reluctant to buy the country’s bullion indirectly or use other currencies for fear of reputational damage or sanctions. And Washington senators want secondary sanctions against anyone who buys or sells Russian gold.

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“That’s why they bought their gold, it was for a situation like this,” said Fergal O’Connor, a lecturer at Cork University Business School. “But if no one wants to trade it with you, it doesn’t matter.”

Moscow may have to turn to the central banks of countries like India or China to sell gold or get loans using it, according to Jeff Christian, managing partner at CPM Group, which tracks precious metals. since the 1970s.

“They could get it back for less than market,” Christian said in an interview from New York. Russia could also sell through the Shanghai Gold Exchange, where it has commercial banks as members, although sales are likely to be weak, he said.

Still, the move by a bipartisan group of U.S. senators to further hamper gold deals could deter banks in countries like China and India from buying or lending against Russian bullion — and Beijing wants to avoid it. to be affected by American sanctions during the war. This further narrows Russia’s options.

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The Bank of Russia did not respond to a request for comment.

Golden attempts

In another example of how the West is targeting Russian gold trading, the London Bullion Market Association and CME Group Inc. have suspended the country’s refineries from their accredited lists, tantamount to a ban on new Russian bullion to enter key London and US markets.

The suspension of refineries by the LBMA has previously restricted countries’ access to the market. After suspending Kyrgyzstan’s state refinery last year, the country had to ask Switzerland if one of its refineries could process Kyrgyz gold for its central bank so it could be accepted on the market. worldwide, said people familiar with the matter who asked not to be identified.

At least one Swiss refinery refused to do so for fear of being penalized by the LBMA, one of the people said. The Kyrgyz central bank did not specifically comment on the matter.

Follow live updates on the Russian-Ukrainian crisis here

Other countries have also turned to gold, or tried to do so, in the face of sanctions. Dictator Muammar Gaddafi sold off a share of Libyan reserves to pay troops during an uprising, according to former central bank governor Farhat Bengdara. And a US indictment against Turkey’s Halkbank in 2019 describes how Iranian funds there were converted into gold, exported to Dubai and then sold for cash.

Venezuela has been fighting to access its gold stored in the vaults of the Bank of England as the UK recognizes opposition leader Juan Guaido as president. The BOE is a popular place for central banks to keep their bullion due to its location in the London market.

Former President Hugo Chavez had already repatriated much of Venezuela’s gold. The Bank of Russia’s gold is stored in the country, according to its 2020 annual report.

If Russia gets desperate, it could sell bullion domestically to buy rubles, Citigroup Inc said. If done at a fixed price, it would amount to an internal gold standard.

“If things get worse, you could essentially re-anchor yourself in a pile of gold,” Credit Suisse Group AG strategist Zoltan Pozsar said on Bloomberg’s Odd Lots podcast. “You need an anchor in situations like this.”

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