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Russia sets fixed gold price as it restarts official bullion purchases

Russia sets fixed gold price as it restarts official bullion purchases

Russia's central bank resumed its gold purchases from local banks on Monday, but it set a fixed price on the precious metal.

Starting this week, the Russian central bank will pay a fixed price of 5,000 roubles ($52) per gram between March 28 and June 30, the bank said on Friday. This is below the current market value of around $68.

The central bank added that the resumption in buying will ensure supply and uninterrupted production of local gold.

Two weeks ago, Russia's central bank announced that it was halting its official gold purchases from local banks due to a surge in demand from regular consumers.

This is because Russians went on a gold buying spree in March to protect their savings as the ruble collapsed. Major banks in Russia reported a rush of consumers investing in bullion and coins.

Sberbank, Russia's largest financial institution, reported that demand for gold and palladium has quadrupled in the last few weeks. Meanwhile, Russia's Ministry of Finance also referred to gold as an "ideal alternative" to the U.S. dollar.

Setting a fixed price for gold reminds some analysts of what the U.S. did during the “gold standard” years. The period between 1879 and 1914 is known as the classical gold standard era, during which one ounce of gold would represent $21. Then in the 1930s, the U.S. banned gold ownership and raised the value of the dollar in gold from $20.67 to $35 per ounce.

That price remained fixed until 1971 when Richard Nixon put a halt on the U.S. dollar's convertibility into gold, which meant that other countries could no longer redeem dollars for gold. In 1973 the gold standard was scrapped.

"I am reminded of what the U.S. did in the middle of the Great Depression. For the next 40 years, gold's price was pegged to the U.S. dollar at $35. There is a precedent for this. It leads me to believe that Russia's intention would be for the value of the ruble to be linked directly to the value of gold," Gainesville Coins precious metals expert Everett Millman told Kitco News. "Setting a fixed price for rubles per gram of gold seems to be the intention. That's pretty important when it comes to how Russia could seek funding and manage its central bank financing outside of the U.S. dollar system."

Gold is one of the most logical international currencies to use when you are trying to get around sanctions, Millman added.



Sanctions against Russian gold

Last week, the U.S. Treasury banned all gold transactions with Russia's central bank.

"U.S. persons are prohibited from engaging in any transaction -- including gold-related transactions -- involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation," the Treasury said on its website.

These types of sanctions could be effective to an extent, said Millman. "It can have a significant impact if for no other reason than to force other partners to shy away from doing transactions with Russia in gold. At the same time, knowing that the global gold market can be rather opaque, it would be much more difficult to enforce that type of restriction or regulation," he explained.

In response to escalating sanctions from the West for Russia’s invasion of Ukraine, Moscow said that "unfriendly" countries could be required to pay for Russian gas in rubles or gold, according to the chair of Russia's Duma Committee on energy.

"If they want to buy, let them pay either in hard currency, and this is gold for us, or pay as it is convenient for us; this is the national currency," Pavel Zavalny said at a news conference on Thursday.

Russia is also considering accepting Bitcoin for its oil and gas exports and being more flexible in general regarding payment options with "friendly" countries.

"We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan … With Turkey, it will be lira and rubles," Zavalny said. "You can also trade bitcoins."

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