9.4
7.725 Reviews
English
EN
Last year, the Russian population bought a record amount of gold, according to new figures from the Russian Ministry of Finance. In total, private individuals bought 50 tonnes of physical gold, ten times as much as a year earlier. And it was mainly wealthy individuals who bought gold, because more than half of this volume consisted of bars of 1 kilo of gold. Why are Russians suddenly buying so much gold? And what does this mean for the gold market?
The main reason for this explosive increase is the government's decision in March 2022 to suspend the 20% VAT on physical gold to be scrapped. Also, when the precious metal is sold, Russians no longer have to pay tax on any returns made. As a result, it has become much more attractive to convert assets into the precious metal. It is not surprising that wealthy individuals in particular benefited from this change in the law, because the war in Ukraine has put relations between Russia and the West on edge. And that means that it has become less attractive for wealthy Russians to hold money in dollars or euros. Physical gold does not have the risk of assets being blocked.
In recent years, due to the high VAT costs, it has not been attractive for private individuals to buy gold. As a result, there has been a large latent demand for gold over a longer period of time, which could only be met in 2022. Uncertainty about geopolitical developments naturally boosted demand for the precious metal last year, both in the Western world and in Russia. Last year's figures exclude sales from December, so the total may be even higher than the 50 tonnes mentioned. For comparison, that's more than the total sales of Gold bars and Gold Coins to individuals in Switzerland in 2022.
According to Sberbank, one of the largest banks in Russia, domestic demand for gold and other precious metals was already in place within a week of the VAT being scrapped. Quadrupled. The state-owned bank VTB Bank also sold a lot of precious metal to private individuals last year, namely 33.8 tonnes of gold bars. "Gold was a good financial protection last year," Yevgeny Beresnev of VTB's investment products division told Reuters. "Clients shifted money to precious metals to diversify their wealth and make profits in long-term planning."
In recent years, the Russian central bank has already bought a lot of gold, quadrupling its total gold reserves. The Russia sovereign wealth fund decided to convert its dollar holdings to Chinese yuan and gold back in 2021. End of 2019 Advised Russia's finance minister, Anton Siluanov, has already called on the sovereign wealth fund to add gold to its investment portfolio. The precious metal is said to be more stable in the long term than investments in financial assets. He advised the sovereign wealth fund to use the same wealth distribution as the Russian central bank. It currently holds more than 20% of its total reserves in the form of physical gold. This gold deposit is entirely on Russian territory and is therefore immune to Western financial sanctions. The fact that precious metals have no counterparty risk also makes it attractive for individuals in Russia to own gold.
Also Read:
