LAWRIE WILLIAMS: Will Russian gold import ban have any effect?
Over the past weekend, it was announced that the countries comprising the G7 nations would be imposing a ban on the purchasing of Russian produced gold in a further attempt to limit Russia’s access to money with which to finance its continuing war on Ukraine. The announcement is, apparently, due today, and will be confirmed by U.S. President Joe Biden and UK Prime Minister Boris Johnson.
Russia is the world’s second largest gold producer, after China, according to the latest data from specialist precious metals consultancy Metals Focus (See: World Top 20 Gold Producing Countries 2021 and Gold Outlook), and its gold output last year was said to be worth some US$15.45 billion to the Russian economy, but whether this supposed export ban by the G7 countries will have any significant effect on Russian export income is somewhat less certain.
Gold tends to find buyers regardless of such imposed bans, and it is perhaps notable that the world’s two largest gold consumers, China and India, as well as several other major gold importers, are not members of the G7. India is already known to be building its state gold reserves, while China is thought to be doing so surreptitiously, and Russia itself may also be adding to its gold holdings as it continues its de-dollarisation process, but is currently following in China’s footsteps in being secretive about any volumes involved.
Russia has also gone on record as saying that it, and the other BRICS (Brazil, India, China and South Africa) nations are working together to develop a new reserve currency to rival the U.S. dollar which will probably have gold as a major constituent in parallel with a system to replace SWIFT (Society for Worldwide Interbank Financial Telecommunication) from which Russia has been arbitrarily cut off by the U.S.
The logic behind this is strong and it all may have some appeal globally given apparent U.S. control over the current system and a current reserve currency which is currently mostly declining in value – particularly given inflation levels in the U.S. and elsewhere. If a new reserve currency can offer greater stability in value, and some form of gold, or commodity backing, may offer this, it may find greater worldwide acceptance, although that would undoubtedly take time. Global economic changes of this nature tend to move slowly.
This all creates yet more uncertainty in the gold markets. The yellow metal did advance in price in European trade this morning, but still remains range-bound between $1,820-1,850 with little real sign of breaking out in either direction. It will probably need to take a lead from U.S. activity, which has tended to be largely unsupportive of the gold price of late.
U.S. gold price interest will probably largely depend on the various data releases on inflation, employment, business confidence and GDP growth as and when they are released. All will have an impact on likely Fed policy decisions at the next FOMC meeting due in late July. Our own view is that inflation will remain elevated, employment and the US economy will both show signs of stress and business confidence will turn down. All this suggests a perhaps more aggressive approach by the Fed with higher interest rates than most have been forecasting this year and next unless there is some kind of policy reversal, which some economic analysts have been suggesting.