Russia spent years building a giant stash of gold, an asset that central banks can turn to during a crisis. But any attempt to sell it will now be a challenge just when it’s needed most.
Bank of Russia expanded its gold reserves almost sixfold since the mid-2000s, creating the world’s fifth-biggest stockpile that’s valued at about $140 billion. It’s the type of asset it could sell to shore up the ruble, which has plunged as global economies isolate Russia following its invasion of Ukraine.
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Doing so will be difficult. Sanctions forbid U.S., U.K. and European Union institutions from doing business with Russia’s central bank. Traders and banks are wary of buying the country’s bullion indirectly or using other currencies out of fear of reputational damage or falling foul of penalties. And senators in Washington want secondary sanctions on anyone buying or selling Russian gold.
“This is why they bought their gold, it was for a situation just like this,” said Fergal O’Connor, a lecturer at Cork University Business School. “But if no one will trade it with you, it doesn’t matter.”
Moscow may need to look east to central banks in nations like India or China to sell gold or secure loans using it, according to CPM Group Managing Partner Jeff Christian, who has followed precious metals since the 1970s.
“They could pick it up at a discount to the market,” Christian said in an interview from New York. Russia could also sell via the Shanghai Gold Exchange, where it has commercial banks as members, though any sales would likely be small, he said.
Still, a move by a bipartisan group of U.S. senators to further hinder gold transactions may deter banks in places like China and India from buying or lending against Russia’s bullion — and Beijing wants to avoid being impacted by U.S. sanctions over the war. That’s further reducing Russia’s options.
The Bank of Russia didn’t reply to a request for comment.
Read the full article here by Eddie Spence, Advisor Perspectives.
