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LAWRIE WILLIAMS: Russia still mute on gold reserve increases

Gold is perhaps the one foreign exchange asset which will ultimately enable Russia to mitigate the effects of the economic sanctions being imposed on it by many other countries.  But the country is playing its cards close to its chest with regard to informing the rest of the world of any change in its central bank’s gold reserve position.  It has previously announced that it is resuming gold purchases after an almost two year hiatus, and as the world’s second, or possibly third, largest gold producer with its mines producing over 300 tonnes a year, it is certainly able to increase its reserves - the world's fifth largest national gold reserve as reported to the IMF - without publicising any actual amounts added.  The monthly date has now passed when the Russian central bank has always announced changes in its gold reserve totals, but no such announcement has been forthcoming so far this month.

Certainly, if Ukrainian claims of losses so far inflicted on Russian military equipment and personnel are to be believed, and they are probably far more accurate than the remarkably low figures coming out of Russia itself, then the costs of replacing lost equipment alone will be massive.  The loss of the Black Sea Fleet’s flagship for example, whether by accident (unlikely) or by Ukrainian missile strike (more probable), will alone have been enormously costly in both monetary and prestige terms.

But back to Russia’s gold reserves.  President Putin had issued a decree that the country’s exports of oil and gas to ‘hostile’ nations would need to be paid for in rubles – a move designed to boost the parity of the ruble against other currencies.  This has been strongly resisted by some of the key players involved, but inasmuch as they are still importing these key resources from Russia they may well be paying for them in gold given that Russia is currently effectively excluded from the dollar world and is probably rejecting payments in euros.  If this is the case then Russia may well be financing its continuing war on Ukraine with gold – which is thus acting as a universal currency, perhaps one of its greatest strengths.

Russia has thus been able to counter some of the Western sanctions through the reliance of so many countries on continuing purchases of Russian energy and other commodities.  Even the U.S. is believed to be still sourcing a good proportion of its uranium for its nuclear power industry from Russia and, if it is, may well be paying for these supplies with gold.  President Putin is, of course, threatening to cut off these strategic supplies altogether.  Russian supply dominance in some sectors is such that Putin is able to play the balance of weaponisation by supply cessation against incoming revenue necessity.  Industry cannot function if raw material and energy supplies are suddenly cut completely. 

Many countries have just become so reliant on imports of key commodities and materials from Russia that that nation’s apparent stranglehold on their economies will have played a huge part in President Putin’s decision to invade Ukraine.  He had presumably gambled that once the invasion was quickly accomplished, through Russian military superiority, and Ukraine subdued, economic factors would quickly return to normal.  Wrong on all counts.  Ukraine has, against all the odds, proved far more resilient than anticipated and the strength of global anti-Russian feeling will likely be such that as soon as is practicable most of Russia’s key markets for its oil, gas and other strategic commodities will be sourced from elsewhere as importers seek to diversify supply sources, or cut Russia out of the equation altogether.

Russian gold, though, will help the nation through such difficult economic times and there may well be a national push to expand gold output which may well propel Russia to become the world’s No.1 gold producer in a few years.  It has, after all, one of the world’s biggest undeveloped gold deposits in Sukhoi Log, although reduced access to Western mining equipment and technology because of continuing sanctions may set it back temporarily.  The Russia/Ukraine War has certainly been an economic game changer for both nations, but one from which Russia in particular may find it difficult from which to recover quickly in terms of global trust.

22 Apr 2022 | Categories: Gold, Dollar, Russia, US, Euro

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