LAWRIE WILLIAMS: Russian gold going to China, but are amounts as tiny as reported?
We had speculated in some previous articles that Russia might be managing to export some of its gold to apparently friendly nations like China and a recent report in The Moscow Times seems to confirm this speculation. However headlines like ‘China's gold imports from Russia surge 750% in July ‘give a hugely misleading impression of the true picture. If the report’s figures are accurate then the amount of gold flowing across the Russo/Sino border is tiny – at least so far.
Russia, is by most estimates the world’s second largest gold producer, but has been cut off by sanctions from marketing its gold to the West. It almost certainly needs its gold sales, though, to help it finance its Ukraine invasion. If Western markets are cut off from receiving Russian gold – the country produces about 27 tonnes of gold a month – then countries like China, which are not participating in imposing trade sanctions on Russia, could well be an important market for this.
The Moscow Times report says that Chinese customs data showed that the country imported some US$108.8 million worth of Russian gold in July, but also notes that China seems to be driving a hard bargain for the gold buying at around a discount of up to 30% from the prevailing market price. However $108.8 million doesn’t buy you much gold these days – even at a discount. It totals about 83,000 ounces if one takes the assumed discount into account. And that is equivalent to a little over 2.5 tonnes. Hardly a significant amount in terms even of Russian output and it certainly won’t make much of a dent in Russian military spending outlays for which one assumes most of the proceeds may be destined.
While the current amounts of gold as reported are probably insignificant, the fact even that China may indeed be buying some Russian gold could be important longer term if the amounts concerned continue to grow. Also, of course, the sceptics will assume the real volumes could be far larger as China tends to be very opaque in its reporting of its real gold reserve position. There is a strongly held theory that the country’s gold reserves are hugely in excess of the 1,948 tonnes it currently reports to the IMF.
China, along with Brazil, Russia, India and South Africa is among the proponents of the development of a new global reserve currency to replace the U.S. dollar in this role and one theory is that gold would play a significant role in this. Thus a bigger gold holding would put the country in a far stronger position in any such global currency reset.
So, perhaps we should disbelieve official China customs data on gold imports from Russia, It could well be misleading given how secretive both countries can be on what might be considered to be strategic data. The figures quoted seem to be far too small to be realistic and could well be many times the official figures. We may never know and can only speculate.