Will Gold Price Rally After G7 Ban On Import Of New Russian Gold?

·2 min read

Key Insights

  • On Tuesday, G7 countries are expected to announce a ban on new Russian gold. 

  • Russia’s share in global gold exports has recently fluctuated near 4.4%.

  • Russia will likely sell gold at a discount to India, China, UAE, and Turkey, mitigating the negative impact of the ban.

G7 Plans To Ban Russian Gold

Gold markets are in spotlight at the start of this week as G7 is expected to announce a ban on new Russian gold on Tuesday.

UK, U.S., Japan, and Canada have already announced this ban. Today, Germany’s Chancellor Olaf Scholz indicated that discussions within the European Union were still ongoing.

Talking about the decision, the British government noted that Russian gold exports exceeded $16 billion in 2021 and that gold was used to reduce the impact of sanctions on Russia.

Currently, gold markets show little reaction to the news, and gold is up by about 0.5%.

Russian Gold Will Flow To Countries With Strong Demand For Jewelry

Russia’s share in total gold exports has fluctuated near 4.4% in recent years. The main importers of the gold are Switzerland and the United Kingdom, whose combined market share exceeds 40%. U.S. is also a major importer of gold with a market share above 11%.

However, it is highly unlikely that all Russian gold exports will disappear from global markets. Other major importers of gold include UAE, Turkey, India, and China. These countries have not imposed sanctions on Russia.

As in the case of the Russian oil, Russian gold will probably be sold at a discount to willing buyers. Some companies that have significant exposure to Western markets will probably avoid taking Russian gold, but others will profit from the discount. As a result, Russian gold exports will decline in the near term, but it remains to be seen whether this decline will be significant.

In the longer term, the situation for Russian gold producers will likely stabilize, as they would be selling their gold to consumers like UAE, India, China, Turkey, instead of financial centers (Switzerland and UK).

According to the data from the World Gold Council, jewelry fabrication remains the key source of demand for gold, so Russia should have little problems selling gold to countries that have strong demand for jewelry.

In this light, it is not surprising to see that gold markets have not rallied after the news. In the short term, Russian gold producers will need some time to find new partners, so the ban will serve as an additional positive catalyst for gold markets. In the longer run, Russian gold exports have a good chance to get back to their pre-sanctions levels.

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This article was originally posted on FX Empire