The EU Council decided to ban the import of Russian gold into the European Union. This was announced on April 21 by EU High Representative for Foreign Affairs and Security Policy Josep Borrell. “We are effectively banning Russia’s most important export after energy,” Borrell was quoted as saying in a communiqué from the EU Council.
The communiqué explains that the ban applies to the purchase, import or transfer, directly or indirectly, of gold if it originates in Russia and has been exported from Russia to the EU or third countries. The embargo also applies to jewelry. Also on July 21, the UK imposed a ban on the import of Russian gold. This is stated in a statement published on the website of the British government.
Earlier, the United States (June 28), Japan (July 5) and Canada (July 8) introduced a ban on the import of Russian gold. The plans of a number of countries that are members of the G7 group to impose an embargo on gold from Russia became known at the end of June. Then European Council President Charles Michel did not rule outthat the EU countries can join the embargo (Vedomosti wrote about this on June 28).
According to the Union of Gold Producers of Russia, gold production in our country in 2021 decreased by 0.2% to 330.9 tons. The total output of gold (including production from secondary raw materials) amounted to 363.5 tons (-0.1%) . According to the Ministry of Finance of the Russian Federation, in 2021, 346.4 tons of gold were produced in Russia, which is 1.8% more than in 2020.
Gold exports from Russia, according to the Federal Customs Service, in 2021 decreased by 5.6% to 302.2 tons, in monetary terms, supplies amounted to $17.4 billion (-5.9%). That is, deliveries abroad amounted to 83-87% of the gold produced in the country.
The largest buyer of Russian gold in 2021, according to the Federal Customs Service, was the United Kingdom, which purchased 266.1 tons (88% of total exports) for $15.4 billion. Russia exported 8.1 tons of the precious metal to Kazakhstan, 7.3 tons – to Switzerland, 5.7 tons to India, 5.5 tons to Germany, 3.7 tons to Belarus, 2.1 tons to Turkey. In addition to Germany, Poland was the importer of Russian gold in the EU in 2021, but the volume of deliveries to this country last year was symbolic – 0.3 kg per $10,000.
Despite the fact that unfriendly countries began to impose an embargo on Russian gold only in the summer, other sanctions restrictions have already affected Russian gold miners.
Canadian Kinross Gold was forced to sell its assets in Russia to Russian Highland Gold for $340 million. Petropavlovsk, registered in the UK, could not sell gold from late March to mid-May due to London sanctions against Gazprombank (the company had to sell the mined metal to the bank under the terms of loan agreements ). Polymetal’s 1H 2022 gold sales fell 23% to 456,000 ounces, the company is considering a sale of Russian assets to restore capitalization fell 6 times).
The Russian authorities are stimulating domestic demand for gold this year. On February 28, 2022, the Central Bank of the Russian Federation, after almost two years, resumed the purchase of gold on the domestic market, and on March 1, the Russian government canceled VAT on the purchase of precious metals in bullion by citizens.
The world price of gold did not react to the news about the sanctions. At 18:27 Moscow time, the price of gold futures on the Comex Commodity Exchange (USA) rose 0.3% to $1,705 per ounce. In mid-July, the price fell below $1,700 per ounce for the first time since March 2021. On March 8, 2022, quotes exceeded $2,000 per ounce.
For Russia, the sale of gold abroad is the second most valuable export flow after energy carriers, Alexander Potavin, an analyst at Finam, confirms. The maximum export of gold in recent years was recorded in 2020 – 320.2 tons for $18.5 billion, he points out. The analyst recalls that London is the center of the global gold trade, which is why about 90% of gold from Russia is exported to the UK. But since April 2022, the status of a reliable supplier has been withdrawn from six Russian refineries, and since then gold exports to Europe have actually ceased, Potavin emphasizes.
According to the head of the department of analytics for the securities market Alfa bank Boris Krasnozhenov, Russian companies can supply gold to China, India and Turkey. Analyst «BCS The world of investments” Anatoly Klim mentions the UAE, China, Turkey and Kazakhstan among the potential sales markets. But in these countries, according to his assessment, there will most likely be a discount on Russian gold to world prices. The UAE, China, Turkey are also named as promising markets by the director of the ACRA corporate ratings group, Ilya Makarov.
The Central Bank usually buys gold from Russian miners at a discount, Potavin said. “Russian gold mining companies can either sell gold at a discount to banks, or try to find a buyer abroad on their own, taking on logistics, security and transportation costs,” the analyst says. The government made it possible for gold mining companies to obtain export licenses for independent export, but given the peculiarity of the gold market, it will not be easy for them to find customers even in friendly countries, Karimov emphasizes.
According to Krasnozhenov, the export opportunities of non-top 10 producers are especially limited. According to Makarov, companies that have a high share of refined gold exports will suffer more, and those that export concentrate will suffer less.
Krasnozhenov notes that sales of Russian companies in the second quarter could have declined significantly, as can be seen from the example of Polymetal. Gold production will decline in 2021, but the accumulation of reserves will contain the magnitude of the fall, Karimov predicts. Companies can also reduce their restocking costs, he said. Klim notes that it will be extremely important for companies to optimize the cost of production. He adds that the ability of the Central Bank, the Ministry of Finance and Gokhran to form a gold purchase mechanism will be important for the industry.
Sanctions will have a very limited impact on the world price of gold, analysts agree. “Only about 2% of the available gold reserves are mined per year, so the balance of supply and demand here is not as important as in other commodity groups. Russian gold will not lose its position on the world market,” Krasnozhenov notes.
Elena Filimonova took part in the preparation of the article