Russia’s central bank plans to restart its purchase of gold from banks beginning March 28 in a bid to “balance supply and demand in the domestic precious metals market,” and bring back a semblance of normalcy to the country’s economy.
The central bank will pay a fixed rate of 5,000 rubles ($49) per gram of gold between March 28 and June 30, the institution said in a March 25 press release. This is below the value of gold in the international market where a gram costs around $62.96 as of March 25, according to KITCO. The Russian central bank argues that the established price level will ensure “a stable supply of gold and the smooth functioning of the gold mining industry in the current year.”
After June 30, the purchase price of gold would be adjusted, taking into account the “emerging balance of supply and demand” in the local market.
Russian President Vladimir Putin had signed a law on March 9 that exempted individuals from paying the 20 percent value-added tax when purchasing physical gold. Demand for gold from households consequently increased, and the Russian central bank halted gold-buying from banks in mid-March to meet demand.
Russia is estimated to hold over 2,000 metric tons of gold valued at around $140 billion. This represents the fifth-largest stash of gold in the world. Gold makes up roughly 20 percent of Moscow’s total reserves. However, $300 billion of Russia’s reserves—roughly 50 percent of total reserves—have been frozen as part of Western sanctions.
G7 nations recently announced that they will be restricting the Russian central bank’s ability to use gold in transactions but Moscow is trying to circumvent the restrictions.
“There is evidence that the Russians may be trying to get round—the Russians are obviously going to try to get round—the sanctions on their gold, and we’re taking steps to try to make sure that there’s no leakage, no sale of bullion into markets around the world,” British Prime Minister Boris Johnson said to reporters on March 24.
Meanwhile, the U.S. Treasury issued a notice on March 24, stating that gold transactions with Russia are banned by citing executive orders signed by President Joe Biden. U.S. entities must make sure that they do not engage in such “prohibited transactions” as violations can result in “criminal or civil penalties,” the Treasury warned.