The Bank of Russia has announced it will resume buying gold on the domestic market from Monday following the announcement of sanctions targeting the central bank. Under the restrictions Russia has been cut off from large swathes of its reserves held in foreign currencies such as the dollar. One remaining area it has access to is physical gold with around 2,300 tonnes stored in vaults across the country. While Russia could look to begin selling some of these reserves to help shore up the ruble, the current sanctions make this highly difficult with Russia no longer able to trade it for dollars, euros, yen or pound sterling.
In a further blow to Russia’s options, the Bank for International Settlements, an umbrella group for world central banks, confirmed it would not become “an avenue for sanctions to be circumvented”.
China remains one possible option, however two Chinese banks have already announced restrictions on financing for Russian commodity purchases, reducing the prospect of China as a market for gold reserves.
Surgei Guriev, an economist at Sciences Po university, told the Financial Times: “Whoever says it will be easy to sell gold or yuans must be kidding – Chinese state banks are already blocking financing of Russian oil sales.
“China is afraid and rightly so of secondary sanctions.”
For now, it seems the bank is looking instead to accumulate more in a part attempt to prop up Russian gold producers struggling to sell abroad due to the sanctions.
CEO of Physical Gold Daniel Fisher told Express.co.uk he expected Russia to accelerate buying gold now.
He explained Russia had been “accumulating its gold reserves for some time now as it’s recognised it doesn’t want to rely on the dollar as the predominant reserve.”
Russia had previously been one of the world’s biggest buyers of gold in a buying spree which ended in 2020 and saw its reserves in gold overtake its reserves in dollars.
Mr Fisher predicted prices of £1,500 an ounce were on the horizon however he warned prices were likely to be volatile.
Chris Beauchamp, chief market analyst at IG, said: “The latest announcements from the Russian central bank that they will resume purchasing gold will provide another boost to the price, which despite recent volatility still seems set for further gains.
“The combination of geopolitical worries plus rising inflation should continue to mean gold is a direct beneficiary, even if Russia isn’t able to pick up as much as it might like due to sanctions.”