Western countries to ban gold imports from Russia
The G7 countries are about to impose a ban on the imports of Russian gold. According to the US Secretary of State Antony Blinken, the ban can cost Russian $19 billion a year. But what effect will this measure have on the gold market as a whole and on the price of yellow metal?
Russia is one of the world's largest gold exporters, so in theory, the news should have caused a price spike. Indeed, the price of oil goes up upon any news of supply restrictions, pipeline issues, and so on, so why should it be different with gold?
And yet, we haven't seen any significant price increase when the plan was announced. Why? Most probably market participants don't believe that this will have any real effect. If the US and the EU stop buying gold from Russia, it will simply switch to selling to India, China, and the Gulf states.
More than that: everyone is now used to the fact that countries placed under sanctions tend to sell commodities at a discount. Therefore, Asian states should soon be able to purchase Russian gold below the market price, while the supply will hardly change.
However, the market seems to be underestimating another important risk: what if Russia decides not to sell gold for US dollars and euros? Russian imports have dropped almost by a factor of 10 in the past 4 months, while oil and gas exports are raking record revenues for the budget. Russia is accumulating enormous amounts of foreigh currency that it cannot spend.
So why should it keep selling physical gold — just to get more fiat foreign money that keeps losing 9% of its value a year (if the official inflation numbers are to be believed)?
A logical decision would be to stop selling gold for fiat foreign currency — and that could trigger a rally. It's not a drop in supply that will serve as the catalyst, but rather the fact that other countries will look at Russia and remember that gold has very real material value. It's gold, and not fiat, that will serve as the reserve that can guarantee a country's economic security.
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