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LAWRIE WILLIAMS: America tries to target Russian gold reserves

Russia is the world’s second or third largest producer of gold, and according to data compiled by the IMF holds the world’s fifth largest national gold reserve total, after the U.S., Germany, Italy and France.  Its central bank has just announced that it has re-started its gold-buying programme which coluld rapidly move it into third place in gold reserve holdings as its current reserve total id only a few hundred tonnes behind those of Italy and France.

Now, according to reports from the U.S., a bipartisan group of senators is moving to introduce a bill aimed at curbing Russia's ability to sell off some of its gold reserves and new gold production to help alleviate the comprehensive sanctions programme that is already adversely impacting the nation’s economy.  We suspect, though, that even if such a policy comes into effect it would be largely symbolic given that the world’s two largest gold consumers, China and India, are so far not participants in the sanctions regime, along with a number of other gold consuming nations.

According to a report on kitco.com, Senator Angus King of Maine commented as follows:   "The free world's sanctions are devastating Russia's economy— and as long as Putin continues his unprovoked and horrific invasion of Ukraine, we must keep up the pressure...Russia's massive gold supply is one of the few remaining assets that Putin can use to keep his country's economy from falling even further."

Although the effects of any such move may well be relatively impotent in their effect on the global gold markets, they could well have a short term impact on the gold price.  Indeed it has already dropped very sharply in overnight trade - even falling back below $2,000  an omce this morning in Europe, losing all of yesterday’s gains.  This could well be because yesterday’s big rise in the gold price was seen to be too far and too fast, but so saying we would still not be surprised to see the gold price coming under further pressure when U.S. markets open today as few Americans may see any such moves as being largely inconsequential.  However it does indicate a strong sense of anti-Russian sentiment which is becoming apparent all around the world.

We continue to see the likely impact of the Russian invasion of Ukraine, and its huge contributory effect on global inflation, as long term positive for gold but do recognise that any negotiated end to hostilities could see a big gold price fall.  But as long as the enhanced Russian sanctions continue, their inflationary impact will keep prices high.  And, as we see it, the sanctions will remain in place unless and until, Russian forces withdraw, which we don’t see as a likely short to medium term scenario.  The West is unlikely to believe any future statements from President Putin given his adamant denials that a Ukraine invasion would happen so these pressures on the Russian economy will likely remain as long as the current regime remains in power and is dictating events. 

The levels of Russian casualties in the attacks appear to be far higher than the Russian military had envisaged and the assessment of these will filter through to the Russian people contradicting the propaganda to which they have been continually exposed by the government.  Internal dissent will likely intensify, despite the dangers facing the regime’s opponents, President Putin may thus have created a massive miscalculation in his invasion purported to be one to free the Ukrainian people from an ultra-right wing regime.  At least we hope so!

09 Mar 2022 | Categories: Gold, China, Russia, US, India

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