Some of the world’s leading economies, including the United States and some members of the European Union and Group of Seven (G7), are working out the details of a ban on gold exports from Russia, with the plan expected to be formally approved as early as this week.
The proposal was first discussed at the G7 summit in Bavaria last month, but the fine print will be finalized by the US, Britain, Canada and Japan before the group votes on a ban on Russian gold imports.
“Note that refined Russian gold is marked and dated and therefore easily identifiable,” the London Bullion Market Association (LBMA), the trade association representing the UK bullion and silver bullion market, said in a statement to Al Jazeera.
“The sanctions imposed from June 24 apply to all new Russian gold, but not to Russian gold produced before that date and located outside of this country.”
Haven’t some countries already banned Russian gold?
Yes, there was an unofficial ban on Russian gold from the London market, as most buyers there stopped trading in gold when the LBMA removed Russian gold refiners from its accredited list in March.
When Britain announced its ban earlier this year, Boris Johnson’s government claimed that gold exports had become valuable for many Russian oligarchs in cahoots with the Kremlin as they turned to bullion to evade Western sanctions.
Market analysts believe the ramifications of the ban could be more political than economic, as the sanctions imposed on Russia have already largely paralyzed the European and US markets for its gold.
Western governments sanctioned Russia’s main gold trading banks, including VTB, Otkritie and Sberbank, and many international banks, refiners and shippers stopped trading in Russian gold.
Additionally, flows to major trading hubs like London and Zurich have definitely been impacted due to sanctions within the precious metals industry even regardless of government intervention.
Why target gold?
Effectively, a ban means that Russian mining companies and banks, as well as wealthy individuals, will be prevented from getting their hands on gold to exchange for hard currencies – especially since the ruble has been hit by war and sanctions.
The ultimate goal of these measures is to lighten Russia’s war chest by limiting its main sources of income.
How important is gold to the Russian economy?
Russia is the second largest gold-producing nation in the world, and its precious metals exports were valued at around $15 billion in 2021. China and Australia are the other countries topping the list of gold miners.
Last year Russia mined 314 tons of gold, Reuters reported, citing data from the Russian Treasury Ministry, accounting for nearly 10 percent of the world’s shiny material.
Russian gold miners mainly sell their wares to domestic commercial banks, which then usually ship or export them to the Central Bank of Moscow. Polyus is the country’s largest gold producer, followed by Polymetal.
Over the past decade, the vast majority of Russian gold has been sent to Britain, the world’s largest bullion trading center. Britain imported $15.2 billion worth of Russian gold last year, according to Comtrade, the United Nations database of international trade statistics.
But in recent years, Russia has also shipped gold to countries like Switzerland, Turkey and Kazakhstan, according to trade data.
So while a ban on Russian gold would make some waves at home, it would not be on par with, say, proposed oil or gas price caps.
Fawad Razaqzada, a market analyst at financial services firm City Index, said: “It’s not that important for the Russian economy, but as the saying goes, Western sanctions are designed to kill with a thousand cuts, and this is just one of them.”
Will a ban have a major impact on supplies to western markets?
The World Gold Council (WGC) does not expect the G7 ban to have any “significant impact” on the global gold market, it said.
“Due to the large above-ground stockpiles, gold is plentifully available to meet manufacturing and trading needs,” it said in a statement to Al Jazeera.
So, while Russia is a major gold producer, its supply may still not be a sufficient factor for a ban on new gold to shake markets noticeably. But has even a small reduction in supply resulted in a price increase?
“One would think that would be the case,” Razaqzada said. “But gold prices have actually fallen quite a bit over the past few months, suggesting that the Russian ban has had no impact at all.
“The impact of the ban is likely to be limited as the industry has already taken steps to restrict Russian gold.”
The LBMA added in its statement: “The June 24 sanctions apply another level of restrictions on the Russian economy.
“However, from a UK perspective, we would not expect – and have not seen – any significant change in the efficient operation of the London market, the global OTC market [over the counter] wholesale physical gold market.”
OTC commodities are securities traded through a broker-dealer network as opposed to a centralized exchange.
Where does Russian gold go instead?
At least six months of economic turmoil, war and global political gamble mean Russia’s gold buyers currently consist mostly of the country’s central bank, domestic commodity customers looking to keep their money safe, and buyers in Asia, particularly China and India, who have not sanctioned Moscow.
With both nations continuing to buy Russian crude at discounted prices, it seems logical that gold traders in both countries would be somewhat unperturbed by a ban on Russian bullion in the West.
“[Russia’s] Gold exports have been diverted since the beginning of the war and flowed east rather than west, reflecting the self-sanctioning nature of western gold market participants,” said Carsten Menk, senior analyst at commodities broker Julius Baer.
“The impact of a ban on the gold market is likely to be very limited.”
Razaqzada added: “The impact on the Russian economy will be negligible as it is likely to still sell gold to its existing customers in some Asian countries, while the West is already reducing imports of almost everything but energy from Russia at the start of the war would have .”
So what is the point of such a ban?
Symbolism. The ban may have a limited tangible impact on Russia’s ability to shop and trade in the short term, but the West hopes that excluding it from another lucrative market could have a long-term impact on its domestic industry and an overall impact on morale.
The LBMA said: “The imposition of sanctions on new Russian gold should not be viewed in isolation, but as part of an increasingly comprehensive package of measures aimed at increasing pressure on Russia’s economy and Russia’s ability to generate foreign exchange earnings.”
What does this mean for the consumer?
Not much, except for those in countries that approve the ban and then plan to buy or trade new Russian gold.
As the analysts said, given ample supply in most markets and a fallen price, the general gold market is likely to remain unperturbed.
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