Russian banks have asked the central bank to resume buying gold for its reserves with exports of the precious metal hobbled by the coronavirus outbreak, their lobby group said, according to Reuters.
The country is the world’s third-largest gold producer after China and Australia but the almost global grounding of passenger flights, which were used to transport the metal, has meant that banks who buy from producers before selling the metal on have to switch to a decreasing number of more expensive cargo flights or build up inventory.
Russia’s central bank suspended gold purchases on the domestic market from April 1, without giving a reason. However, analysts have suggested it is focusing on foreign currency sales to support the rouble, which has fallen in line with lower oil prices as the virus spread.
Vasily Zablotsky, the head of the National Finance Association, a non-government lobby group of Russian banks, told Reuters that banks are “facing problems” exporting gold as there are also fewer cargo flights and transportation costs have doubled.
In this situation “banks will have to either refuse to buy gold from producers or to increase the amount in the vaults,” he said.
Russia’s central bank declined to comment on Tuesday but has said previously that a further decision on gold purchases would depend on how the situation on the financial markets develops.
Russia produced 10.1 million ounces (314 tonnes) of refined gold in 2019, of which 5.1 million ounces were bought by the central bank and 3.7 million ounces were exported mainly to Britain and Switzerland, the top markets for global gold trade.
The central bank reduced its gold purchases in 2019 to support exports but remained the largest buyer of gold produced in Russia. Its gold reserves stood at 73.6 million troy ounces with the value of $120 billion as of March 1.
The banks’ lobby group also plans to ask the central bank to start accepting gold pledged as collateral for the refinancing of banks’ debt and organize gold swap deals which provide rouble liquidity to the banking market, Zablotsky said.
Russian gold miners are relatively unscathed so far, hoping that demand for Russian bars will remain healthy in London due to a number of suspended refineries in Switzerland.
“I do not see any drama in this,” said a top-manager at one Russian gold miner.