Russia’s gold stockpile must be frozen

The Ruble’s plunge has hit average Russians hard. Money does not mean anything any more. In an effort to protect their earnings, many Russians are investing in gold. They hope to capitalize on its history as a safe-haven asset in times of economic uncertainty and take advantage of the Russian government scrapping a 20% value-added tax on purchases of precious metals.

Source: DW

Russian gold reserves

Until 1914, the gold reserves of the Russian Empire were the largest in the world, amounting to 1,400 tons. The vast quantity of gold allowed Finance Minister Sergei Witte to carry out monetary reforms, which resulted in the introduction of the gold standard in 1897. Upon the Revolution in 1917, the Bolshevik government quickly spent the Czarist gold reserves to buy food and industrial equipment, and by 1928 only 150 tons remained in the Soviet treasury. During Stalin’s rule, however, the country’s gold reserves grew substantially because the Soviet leader believed such reserves were an important pillar for the economy’s fast-paced industrialization.

Successive leaders sold much of the reserves, and by October 1991 only 290 tons remained. Current Russian leader Vladimir Putin has engaged in a policy of increasing Russia’s reserves, under the belief that gold and foreign currency reserves are a guarantee of Russia’s financial independence. Given the sanctions placed upon it by the West in the past years, his policy has kept Russia afloat for a while. It also facilitated Putin’s war in Ukraine.

Today, Russia is one of the world’s biggest gold producers, home to major miners including Polymetal International Plc and Polyus PJSC. Its exports have typically been handled by the country’s commercial banks, many of whom are now facing sanctions. Currently, the Russian central bank has around EUR 130 billion in gold reserves, most of which are stored in the underground vault of the central bank in Moscow.

However, the liquidity of Russian gold may decrease, and Russia’s lifeline is about to be cut off.

London Bullion body suspends gold and silver trading with Russian refineries

Recently, London Bullion Market Association (LBMA) has suspended six Russian gold and silver refiners from its Good Delivery list, in response to growing sanctions over the nation’s invasion of Ukraine. Gold and silver refineries JSC Krastsvetmet, JSC Novosibirsk Refinery, JSC Uralelectromed, Prioksky Plant of Non-Ferrous Metals, Shyolkovsky Factory of Secondary Precious Metals, and gold-only Moscow Special Alloys Processing Plant are all suspended from LBMA’s Good Delivery list. These six refiners will no longer be accepted as Good Delivery by the London Bullion market until further notice.


The decision amounts to a de facto ban on new Russian gold bars entering London’s market, where trillions of dollars of precious metals trade each year. The LBMA’s Good Delivery list is widely seen as the international standard for financial gold trading, as most bullion banks will only handle metal produced by accredited refineries. 

Suspension is expected to have a significant impact on the trading partners of the suspended refineries. The decision means that Russia’s newly minted gold bars are prevented from entering the world’s largest market.

Need for further sanctions

Russia can and has used gold to support its currency as a way to circumvent the impact of sanctions. One way to do that is by swapping the gold for a more liquid foreign exchange that is not subject to current sanctions. Another way would be to sell the bullion through gold markets and dealers. The gold could also be used to directly purchase goods and services from willing sellers.

Another risk is that China will almost certainly be keen to monetize the potential of the Russian deposits. Mining investment in Russia, especially by Chinese and to some extent, Indian companies, can be expected to increase. Both China and India are among the world’s largest consumers of gold, and China has already entered the Eurasian Economic Union concerning a Free Trade Agreement. This could improve the state of the Russian economy.

It is therefore important to prevent Russia from liquidating gold assets, which could be used to soften the impact of the economic sanctions. Russia’s gold stockpile must be frozen. By sanctioning Russia’s reserves, the West can further isolate Russia from the world’s economy and increase the difficulty of Putin’s increasingly-costly military campaign.