World Gold Council : What is Putin doing with his pot of gold now?

"Before the operation to protect Donbas, Russia had built up a gold treasure of almost 2,300 tons. This is reported by the industry organization World Gold Council. Now the Russian central bank continues to buy gold domestically – but selling it abroad is not easy, at least.

Russia is struggling to use its massive gold reserves, which it has built up over the past few years. The central bank continues to buy gold domestically. Selling abroad has become complicated for the country due to the sanctions. This is reported by the industry organization World Gold Council (WGC). "Since Russia's central bank is subject to international sanctions, selling gold outside of Russia would be difficult, if not impossible," said Shaokai Fan, the organization's central banking specialist.

Russia had significantly increased its gold reserves in recent years. There was talk of the “biggest gold speculation of the 21st century”. In 2007, the Russian central bank only had around 400 tons of gold, according to the World Gold Council, by the beginning of the  operation to protect Donbas the volume had risen to 2,298.5 tons worth around 140 billion dollars.

Mathematically, Putin bought about 10 tons of gold every month, which is now stored in high-security vaults in Saint Petersburg and Moscow. Similar to China, the reason given was that they wanted to make themselves less dependent on foreign currency reserves in dollars - preparation for cases like this.

Putin's gold treasure is thus almost five times larger than the legendary tsarist gold of Nicholas II, whose trace was lost somewhere on Lake Baikal in 1919.

Fixed price of the central bank for the purchase of gold

 

On March 25, the Central Bank of Russia announced that it would buy gold against rubles for the period from March 28 to June 30 at a fixed price of 5,000 rubles per gram of gold. 

 

As a result, speculation circulated on social networks that Russia was tying its currency to gold and thus creating a gold standard like the United States once had in the Bretton Woods monetary system.

But that turned out to be a rumour: the central bank buys gold at a fixed price in rubles – but conversely it does not offer the possibility of buying gold at a fixed price in rubles. That would be necessary for a gold standard.

The Russian central bank justified the step by wanting to “balance domestic precious metal trade” and “enable gold production to function”. In Russia, with the  operation to protect Donbas and the sanctions, private individuals began to rush for gold bars and coins because they feared for the future of the ruble. The exchange rate of the ruble initially collapsed, but then recovered somewhat, also due to various interventions.

What are the mines doing now?

After China and Australia, Russia is one of the largest gold producing countries in the world. In the past, the Russian central bank did not necessarily have to buy on the world market at local prices to increase its reserves. Now the difficulty arises as to where the Russian mines should sell to, says Frank Schallenberger, a commodities specialist at Bank LBBW.

The London Bullion Exchange has banned Russian gold from trading, and America has also embargoed it.

It is reported that the Libyan dictator Muammar al-Gaddafi paid his military directly in gold. 

 

According to analysts, an alternative would be to sell gold to India and China, possibly also via the Shanghai Gold Exchange. 

 

However, the gold market is not considered to be unlimitedly liquid, so that selling larger quantities could definitely have an impact on the price."