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Russia’s miners seek new ways to sell $20b annual gold output

The new sanctions move will further impact the Kremlin’s ability to launder money, and in effect will apply secondary sanctions on people who trade in gold with Russia

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Russia’s huge gold industry is searching for new ways to sell its metal, including direct exports to China, India and the Middle East, as sanctions choke off its traditional sales routes, precious metal analysts said.

According to people familiar with the matter, the direct export strategy being pondered by Russian miners, who desperately seek to sell the roughly 340 tonnes worth about $20 billion they produce each year, comes in the wake of the latest sanctions move by the US and its G7 partners to bar all transactions with the Russian central bank’s gold reserves, valued at roughly $130 billion.

The new restrictions by the West will close off all avenues for Russia, the second biggest gold mining nation in the world, to sidestep international sanctions in response to the country’s unprovoked invasion of Ukraine, analysts said.

The new sanctions move will further impact the Kremlin’s ability to launder money, and in effect will apply secondary sanctions on people who trade in gold with Russia, experts say.

The ban on gold announced by President Joe Biden are designed to prevent Russia from selling its gold reserves on the international market for other, more highly valued currencies, thereby mitigating the damage done to the rouble. The Russian currency was devalued by as much as 40 per cent since the country invaded Ukraine.

The US and its bloc fear that apart from swapping the gold for a more liquid foreign exchange that is not subject to current sanctions, Russia could sell the bullion through gold markets and dealers. The gold could also be used to directly purchase goods and services from willing sellers, analysts said.

President Biden’s executive order to close this loophole for Russia comes two weeks after the proposal of the “Stop Russian Gold Act,” a bill drafted by both Democrats and Republicans that aims to bar any US citizen or entity from selling or trading gold with Russia’s central bank holdings. The order stipulates that non-Americans are prohibited from aiding or conspiring with American citizens to violate sanctions.

The legislation was drafted in response to the Bank of Russia’s declaration last month that it would resume buying gold on its domestic precious metals market, in what was largely seen as an attempt to sidestep international sanctions imposed on the country’s financial institutions.

“It is another way to close sanctions loopholes, and increase economic pressure on Russian entities,” said Rachel Ziemba, a senior fellow at the Center for a New American Security. The ban on gold transactions is also an attempt to prevent innovative financial transactions through other countries that continue to do business with Russia.

Precious metal experts said Russia’s huge gold industry, which desperately wants to sell the roughly 340 tonnes worth about $20 billion its mines produce each year, is searching for new ways to sell its metal, such as exporting more to China and the Middle East, as sanctions choke off its traditional sales routes.

As of 2018, Russia was estimated to have as much as 1,857 tonnes in gold reserves — the fifth largest stockpile in the world — according to SchiffGold.

Experts fear that Russia’s current stockpile, comprising roughly 20 per cent of its central bank’s holdings and worth $130 billion today, could be used as a means to sustain its war efforts in Ukraine which, despite having suffered setbacks across multiple fronts.

— issacjohn@khaleejtimes.com

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