Russian central bank keeps peak discount on gold purchases
Russia’s central bank has maintained the discount at which it buys gold for its reserves at December’s peak level, it told Reuters on Friday, potentially prompting more local producers and bankers to export the metal.
The central bank remains the largest buyer of gold produced in Russia, but since May it has been buying at a discount to the previously used London benchmark to help develop the domestic market and stimulate exports.
“The Bank of Russia is currently buying gold at a discounted price, which has been set since December 2019,” it said. That discount grew gradually each month from May onwards, reaching a peak of 0.12%-0.21% in December.
The central bank, which declined to disclose if its price policy is about to change, increased gold holdings in its forex and gold reserves by 5.1 million troy ounces in 2019 to 73.0 million ounces, worth some $110 billion.
Its demand for gold however fell by 42% last year after record purchases in 2018 as risks related to Western sanctions against Russia receded. The share of gold in its forex and gold reserves rose by 8 percentage points over five years to 20%.
“The central bank’s need for gold is declining, as it is already the third largest asset after the euro and dollar,” Dmitry Dolgin, chief economist at ING Bank in Moscow, said.
Russia remained the world’s fifth largest official sector holder of gold in 2019 after the United States, Germany, France and Italy.
As a result of weaker demand from the central bank, Russia’s exports of gold bars soared sevenfold to 3.7 million ounces last year, Reuters calculations based on official customs data showed.
In value terms, exports jumped to $5.5 billion in 2019 from $685 million in 2018. Britain and Switzerland, the biggest markets for global gold trade, remained the main destinations for Russian gold.
Russia is the world’s third largest gold producer. By reducing purchases, the central bank makes banks less dependent on it as the principal buyer of gold in the long-term, said a banking source.
Russian gold miners, which now export gold mainly via commercial banks, are waiting for the government to grant them general export licences so they can ship metal overseas independently, Sergei Kashuba, the head of Russia’s Gold Industrialists’ Union, told Reuters.
Currently they are only able to secure one-off licences.
The central bank has not objected to this process, but it will take some time to implement due to January’s change in government and the need to clarify the economy ministry’s position on the proposal, Kashuba said.
His union is a non-government producers’ lobby group.
(By Elena Fabrichnaya and Polina Devitt; Editing by John Stonestreet and Jan Harvey)