Individuals in Russia are hoarding gold
International Business News – Gold purchases by individuals in Russia are increasing. Data aggregated by international research agencies show that the demand for gold bars and coins in 2022 increased to about five times the previous year. The reason for this is the increased concern of the Russian population about the devaluation of the currency ruble and rising prices against the backdrop of economic sanctions due to Russia’s attack on Ukraine. Russian-produced gold cannot be sold on the international market due to the sanctions, while China continues to buy it. The expectation of the existence of a means of liquidation is also likely to have driven Russian individuals to buy gold.
According to international research firm World Gold Council (WGC), net purchases of gold bars and coins by Russian individuals reached 25 tons in 2022. This represents a 4.7-fold increase compared to 2021, with both purchases and growth rates reaching new highs since 2010 for which comparable data are available. In terms of growth rate, No. 2 is Egypt (83% increase), which also stands out in the world.
Net individual gold purchases, including gold bars, coins and jewelry, reached 60.7 tons, a 30% increase over the previous year. The highest level was recorded since 2014, when the country was subjected to sanctions from Europe and the US due to the merger of Crimea.
Russian nationals’ concerns about the country’s economy and currency, the ruble, are among the reasons. Gold is known as a “safe asset” that is not easily affected by state and corporate bankruptcy. Japanese financial and precious metals analyst Koichiro Kamei noted that “the Russian public, facing a significant devaluation of the ruble, is trying to hedge by buying gold, which is a ‘stateless currency'”.
After the attack on Ukraine, Russia faced price hikes due to economic sanctions from Europe and the U.S. In January 2022, prices rose by about 8% year-on-year, reaching 17.8% at one point (April 2022).
It then levelled off slightly due to monetary tightening and other measures, but still reached about 11% by January 2023, maintaining a 2-digit increase. It is believed that the country’s finances will deteriorate due to the capping of export prices of Russian crude oil by Europe and the United States, among other reasons. According to Kamei, “(Russia’s) personal worries are increasing”. According to Japanese market analyst Yoshio Toyoshima, if the crisis in Ukraine is prolonged, “the uneasiness of the Russian people will be strengthened and the demand for gold may increase further”.
As part of the economic sanctions, newly produced gold from Russia, which is one of the world’s few gold-producing countries, is excluded from the main international trading network. The intention is to make it impossible for Russia to obtain foreign currency such as dollars and euros by selling gold.
However, Russian gold production is not completely excluded from the international market either. China is still increasing its purchases of Russian gold. Data from the Chinese General Administration of Customs show that gold imports from Russia reached about $390 million in 2022. This is about 60% more than the previous year.
At the average annual price in 2022 ($1,805 per ounce) purely, imports reach about 7 tons, higher than in 2021 (about 4 tons). Tetsu Yoshida of Japan’s Rakuten Securities Economic Research Institute analyzed, “It is also possible that Russian nationals have strengthened their investment in gold because they judge that they can still liquidate it under sanctions.”
If there is an increase in the purchase of gold by Russian individuals, it will be a major factor in the tightening of international supply and demand for gold. Countries such as China, which have distanced themselves from the sanctions imposed by Europe and the U.S., are strongly inclined to buy gold as part of the “de-dollarization” process. If the domestic demand for gold in Russia increases, the flow to countries such as China, which buy Russian gold, will decrease, and in its place, purchases from the European and American markets are likely to increase.