Russia loses $12 billion in gold

Main importers of Russian gold

The exports of gold produced in Russia have grown sharply this year and continue to grow at a rate comparable to hyperinflation in the 1990s. In just 9 months, 211,4 tonnes of precious metal were exported from the country, it is five times(!) more than in the same period last year (at that time, the export volume did not exceed 40 tonnes).

In value terms, the volume of exports has increased almost seven times: from $1,8 billion to $12,13 billion. Higher rates and volumes of gold exports, of course, are associated with the growth of its quotations on world markets, which, in turn, is explained by the desire of global investors to invest in a more stable asset due to the overall volatility of both currencies (dollar and euro) and other exchange-traded assets, in particular oil and gas.

At the same time, the geography of importing countries has also expanded. A year ago, Russian gold was mainly sold to two states that are known for their developed exchange platforms, banking systems, and jewelry industry — the United Kingdom (primarily Great Britain) and Switzerland.

London is home to the largest international gold trading centres. In particular, physical gold is traded on the London Bullion Market (LBM). Gold contracts, including futures and options, are traded on the London Metal Exchange (LME).

Zurich, Switzerland, became the largest gold trading centre in the 1970s. From the early 1980s, Switzerland imported between 1,200 and 1,400 tonnes of gold a year, exporting between 100 and 1,200 tonnes. Today, Switzerland imports up to 40% of the total gold supply in the world, being the largest re-exporter (gold is then resold to other countries). The most influential Swiss players in the gold market are the three banks UBS, SBC and Credit Swiss.

New importing countries

In the first 9 months of 2019, 37,7 tonnes of Russian gold worth $1,7 billion moved to the British vaults of banks, investors and jewelers. The Swiss spent 1,3 tonnes of gold worth $55,8 million. In this sense, just “pennies” went to Singapore and China (112 kg worth $4,6 million and half a tonne worth $20,8 million, respectively).

In 2020, Britain and Switzerland among the substantial importing countries in terms of volumes (we'll leave aside the sales limited to a few kilos — like Armenia and Belarus, where purchases could be caused by unstable political situation in these countries) have been added with Hong Kong (there is the largest international gold trading), where they sold 207 kilogrammes of the precious metal worth $11,3 million, India, which bought 1,6 tonnes of gold worth $96,5 million, and Turkey, where 6,8 tonnes worth $377,2 million went.

There are only a few Russian regions that export gold, but interestingly, if in 2017-2018 only a couple of subjects of the country worked for sale abroad, now the geography of sellers has expanded. For example, in 2017, gold was exported by Sverdlovsk Oblast (just over four tonnes), Krasnoyarsk Krai (1,3 tonnes), Khabarovsk Krai (1,8 tonnes) and two reselling entities — Moscow and St. Petersburg. At that time, 57,7 tonnes worth $2,35 billion were exported — mostly, again, to Switzerland (1 billion) and the United Kingdom (1 billion). The high volumes of gold exports were explained by the high prices of gold on the world markets: 3 years ago, gold was trading at a price above $1,300 per troy ounce (one ounce is approximately 31,1 grammes of gold).

In 2018, only Sverdlovsk Oblast and Krasnoyarsk Krai (plus Moscow) remained among the exporting regions. Due to the fall in the price of gold below $1,200 per ounce, only 16,6 tonnes were sold for export worth $685,3 million.

Kostroma gold miners join Siberian ones

In 2019, the price of gold went up again, exceeding the psychologically significant mark of $1,500 a troy ounce. As a result, the geography of exporting regions instantly expanded: Irkutsk Oblast, Amur Oblast, Kostroma Oblast and Khabarovsk Krai joined Sverdlovsk and Krasnoyarsk. Export volumes increased more than five times: gold bullions weighing 116,2 tonnes worth $5,5 billion were sent abroad.

The appearance of Kostroma may be surprising (the Ural and Siberian regions have been famous for gold reserves and its production for decades). In this region, gold mining began not so long ago, the presence of sufficient gold reserves in the Kostroma subsoil was confirmed only at the very end of the 20th century. Industrial mining began in 2013, when the state held two auctions for the right to develop the Chabra (projected reserve — 630 kg of placer gold) and Zastavskoe (reserves — 700 kg) sites. The total area of gold deposits in the region, according to local authorities, was about 2,000 square metres. As a result, in 2019 Kostroma sold 4,8 tonnes of gold for export.

How tragedy on the dam deprived Krasnoyarsk residents of gold

We will also note that despite the high quotes, the largest gold miner, Krasnoyarsk Krai, almost disappeared from the list of exporting regions. “The most golden region of Russia” has sold ridiculous 40 kg of gold abroad this year.

Experts attribute the decline in the share of precious metal exports to last year's tragedy, when on October 19, 17 employees of the Sisim gold mining enterprise were killed due to a dam break, and rivers were damaged at 360 million rubles.

In January 2020, Sisim company from Sibzoloto holding (in the top 20 Russian gold miners) was revoked of the license for gold mining in the Bolshaya Seyba River basin. A mass inspection of hundreds of such enterprises took place in March 2020.

As it turned out, up to 60 tonnes of gold is extracted annually in Krasnoyarsk Krai, the main part is accounted for the large company Polyus — but at the same time, up to 300 small licensed companies in the south of the region are engaged in mining.

Gold rose by 25%

In 2020, the demand for gold increased significantly against the background of general instability in the global economy and the strongest volatility on the stock exchanges. The price of the precious metal also naturally grew (it always rises in price in turbulent times — and it is very popular with conservative investors).

The year began with the price of gold over $1,600 per troy ounce, by the height of the first wave of the pandemic in April, the market value of gold reached $1,700, and after a short fever caused by the sale of gold assets (and the price falling below $1,500 per troy ounce), it continued to grow all summer.

By the beginning of autumn, prices reached a record 2000-2100 dollars per troy ounce. To date, the price has stabilised (some speculators who bought the metal at the peak of its price usually sell this asset to get a short-term profit — which causes the quotes to bounce down), but gold is still trading around $1,900.

Situation with pandemic superimposed on exports growth

The growth of exports repeats the dynamics of gold prices. For example, in January 2020, only 8 tonnes of metal worth $400 million were sold, in February — 8,1 tonnes worth $413,4 million. In March, already unstable due to global pandemic, 11,4 tonnes of gold worth $573,5 million were exported. In the April chaos, while half the country was placed on lockdown, exports increased significantly — already 41,7 tonnes of metal worth $2,2 billion were exported.

In somewhat calmer May after self-isolation, only 23 tonnes of gold worth $1,2 billion were sold for export. During the summer months, when the world and Russia were confident that the pandemic was on the decline, and the economy and markets revived a little, export sales were stable (although still high). June exports: 22,5 tonnes of gold worth $1,2 billion were exported. July exports: 23 tonnes of gold worth $1,36 billion. August: 20 tonnes of gold worth $1,25 billion were exported.

In September, when Russia and the world as a whole were on the threshold of the second wave of the pandemic (or, as doctors say, the first wave, reinforced by seasonal diseases), economy and markets shook again, and gold exports from Russia reached peak values. In just one month, 54 tonnes of gold bullions worth $3,37 billion were sold. In fact, September alone accounted for almost a third of all export sales in 2020 (or a quarter by weight).

How new Central Bank's policy affected

At the height of the summer, it became clear that revenues from gold exports for the first time in the history of modern Russia exceeded revenues from gas exports, reaching $3,58 billion in April-May (for the second quarter, pipeline gas exports brought Russia only $3,5 billion in revenue). This was partly caused by the Central Bank's refusal to buy gold on the domestic market for an indefinite period, which Elvira Nabiullina's department has been doing for the past 5 years, accumulating gold reserves of $120 billion. The banks, to which mining companies are obliged to sell gold under loan agreements for the possibility of financing, had no choice but to send gold abroad. In Russia, there is simply no one to buy it in such quantity. In addition to banks, in April 2020, gold producers themselves received the right to sell gold abroad, although they did not have time to issue licenses for such sales in April-May.

This is confirmed by independent expert agencies, so, according to July data from the international audit and consulting network FinExpertiza, the multiple increase in gold exports from Russia in the spring of 2020 was caused by two reasons: “the increase in prices for precious metals and the suspension of its purchases by the Bank of Russia”. At the same time, exports of other precious metals increased, but not in such volumes: in particular, platinum (an increase of 26% to $1,64 billion) and silver (an increase of 18% to $73,6 million). Certainly, any sale of gold and foreign exchange reserves of the Central Bank of Russia is out of the question — this is evidenced by the geography of regions-exporters, the Bank of Russia brought the share of gold in its reserves to 20% last year alone (optimum, how he said, level). And it is possible to compensate for the shortfall in oil and gas revenues by selling gold and foreign exchange reserves (which, once again, the state has not done this year) only for a short term.

There is just no one to sell hundreds of tonnes of gold on domestic market

The authors of another study from the Institute for International Political and Economic Strategies — RUSSTRAT believe that in 2020 “nothing extraordinary happened on the gold market”, which, to put it mildly, is controversial, but there is some truth in this. Every year, private mining companies (the main ones are Polyus, Polymetall, and Petropavlovskaya) extract more than 300 tonnes of gold, of which 60 to 100 tonnes go to medicine, electronics, and jewellery (up to 40-50 tonnes).

In 2014-2019, the Central Bank purchased the rest of the gold: about 60% of the gold produced by private companies went to the state. The rest was exported. Considering the annual growth of gold mining (in 2020 they promise a 12% growth to 360 tonnes in 2019) and a decline in domestic demand caused by the reduction of solvent demand of the population in the pandemic, the surplus of the gold natural go to the Western stock exchanges, contributing to the growth of precious metal quotations.