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Russia: a significant force

on the global gold market


Tatiana Fic In 2016, the Central Bank of the Russian Federation bought
201 tonnes of gold, substantially more than the central bank
of any other country. The Peoples Bank of China, in second
Director, Central Banks place, added 80 tonnes to its reserves, while the National
and Public Policy Bank of Kazakhstan, in third position, acquired 36 tonnes.
World Gold Council

Over
the past decade, the
Bank has added more than
1,250 tonnes to its gold reserves,
Russia is the largest official taking its holdings to about
purchaser of gold in the world and 1,700 tonnes, the sixth largest
the third largest producer. But it gold reserves in the world.
has yet to reach its potential on
international investment markets.
That could be about to change, Russias interest in gold stems back for many years but
particularly if certain key policy it has reached new levels over the past decade. During
that time, the Bank has added more than 1,250 tonnes to
changes are implemented. its gold reserves, taking its holdings to 1,700 tonnes. The
sixth largest gold reserves in the world, they constitute
17% of the nations wealth.

Central Bank of the Russian Federation.

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Russia: a significant force on the global gold market

Why has this happened? In the words of Elvira Nabiullina, Russia is not only the largest official buyer of gold,
Governor of the Bank of Russia: We are adhering to the it is also a leading producer
principle of reserve diversification. This principle remains
Production has almost doubled since 1995 and today,
unchanged. From this perspective, our reserves do include
Russia ranks third on the list of global producers, behind
gold.1 Dmitry Tulin, the First Deputy Governor, has also
China and Australia. In the past ten years alone, the country
stated that the Bank of Russia has been increasing the
has mined more than 2,000 tonnes of gold, with production
amount of gold in its reserves, as only this reserve asset
of more than 300 tonnes expected this year, rising to 400
provides total protection against legal and political risks.2
tonnes by 2030, according to Sergey Kashuba, Chairman of
the Union of Gold Producers of Russia.3
Growth has been driven by a range of factors, particularly
the privatisation of state-controlled gold mining companies
Gold
is one of the most and consolidation of smaller gold producers, both of which
allowed Russian miners to compete on the global stage.
effective investment assets in Today, the five biggest gold mining companies Polyus,
the long run. Polymetall, Kinross, Petropavlovsk and Nordgold produce
more than 120 tonnes of gold a year, some 50% of Russias
total production, according to the Union of Gold Producers
of Russia.

In our recent discussions, Gokhran of Russia a state Seven out of eight gold refining companies in Russia are
institution under the Ministry of Finance whose gold on the LBMA Good Delivery List, a significant number of
holdings make up part of the countrys official reserves accreditations, surpassed only by Japan and China. But
said that Gold is one of the most effective investment capacity far exceeds production. Krastsvetmet, the largest
assets in the long run and the large volumes of gold Russian refinery, refined about 170 tonnes of gold last
purchased by both official and private investors globally year, for instance, against an annual refining capacity of
show how attractive this asset is. During the last 15 years approximately 250 tonnes.4 Similar instances exist across
the price of gold has increased five-fold, although the the refining industry.
price of gold can fluctuate a lot in the short run. Gokhran Despite these positive trends, private investment
responds to the changing situation on the global gold remains exceptionally low, totalling just four
market and when market conditions are favourable tonnes last year.
replenishes its gold reserves.
This compares to 285 tonnes in China, 105 tonnes in
Germany and 93 tonnes in the US.

2,000 tonnes
of gold was mined by Russia
in the past 10 years

1 Bank of Russia press conference with


E. Nabiullina, December 2016. Translated by the
World Gold Council https://www.cbr.ru/press/st/press_
centre/Nabiullina_16122016/
2 Reuters, November 2015, http://ru.reuters.com/article/
companyNews/idRUL8N13823N20151113
3 Sergey Kashuba, Union of Gold Producers,
:
2016
2020 , July 2017.
4 Television interview with Mikhail Dyagilev, CEO of
Krastsvetmet, April 2017, http://www.krastsvetmet.ru/press-
center/news/55-2017/493-14-04-2017.html

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Russia: a significant force on the global gold market

Moscow city skyscrapers.

Attended by Alexei Moiseev, Deputy Minister of


Finance, representatives of the Union of Gold Producers,
Krastsvetmet, the Moscow Exchange, the World Gold
Independent
analysis also Council and leading banks including Bank Otkritie, Lanta
suggests that the abolition of Bank and Sberbank, the event saw widespread support for
the removal of VAT on gold. Marina Tseplyaeva from the
VAT should drive growth within Union of Gold Producers said at the meeting: The initiative
the domestic gold industry, will permit a sharp rise in the investment appeal of gold
for Russians and increase their demand for physical gold.
conferring material benefits on Independent analysis also suggests that the abolition of
the Russian economy. VAT should boost retail demand for gold by around
50 tonnes per year in the long run, conferring material
benefits on the wider economy.5
The draft amendment to the Tax Code has now been
submitted for consideration by the Russian government and
Russian investors are not uninterested in gold but many hope it will be approved.
purchases are subject to punitive tax treatment. The
government, the Bank of Russia and commercial banks Today, Russia is a prominent player in the global gold
can purchase gold VAT free. But individual and institutional market, both on the supply and demand side. It is the
purchases of gold bars are subject to VAT of 18% the worlds third largest producer, with a 200-year history of
highest rate in the world. gold mining, and the most significant official purchaser of
gold. In our view, opening up the domestic gold investment
Many in the gold industry believe that the Russian gold market could make a material difference to the Russian
market would benefit materially if this taxation regime economy, the gold industry and the countrys position on
were changed. And in July of this year, Anatoly Aksakov, the global gold stage.
Chairman of the Russian State Duma Financial Markets
Committee held a roundtable at the Russian Parliament
to discuss the development of the Russian gold market,
including the removal of VAT on gold bullion purchased by
private investors.

5 EY, Assessment of VAT relief on gold bars in Russia, January 2017.

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