Russians buy gold en masse after scrapping VAT

The central bank of Russia has revived its plan to buy gold Withdrawn to meet domestic demand. Last week Deleted The government has reduced VAT on gold, making it suddenly much more attractive for private individuals to buy gold. And the Russians are doing this on a large scale, which is why the central bank is now taking a step back with its bond-buying program. It's a remarkable turn of events, because at the end of February, the central bank intention known to buy gold again.

One possible explanation is that the Russian central bank has also been overwhelmed by the effect of the tax measure. Until recently, Russia applied a VAT of 20% on gold bars, which made buying physical gold uninteresting. In that case, savers who wanted to protect their assets against inflation were better off holding an account in euros or dollars. But due to economic sanctions against Russian banks and the decision of Western countries to freeze foreign exchange reserves of Russia, Russians now prefer Buy gold.

Savers flee to gold

"People are buying gold because there are rumors that the use of dollars can be restricted. Buying gold is therefore an alternative way to protect savings against inflation", a gold trader from Coins Moscow stated. Earlier, the Russian central bank decided to limit access to hard currencies such as euros and dollars. limit. Companies will be allowed to withdraw up to $5,000 worth of U.S. dollars, Japanese yen, British pounds, and euros over the next six months.

Individuals are allowed to withdraw up to $10,000 in foreign currency until September 9. As a result of these restrictions, Russians now have fewer options to protect their assets from a depreciation of the ruble. In order to keep foreign currency in your own country as much as possible, Russia encourages the purchase of physical gold. Precious metals have now become the most obvious alternative for wealthy Russians. This is not the case for the average Russian who has much less money to spend. "The common man thinks that tomorrow there may be no food left in the store. That's why they hoard foods like sugar, porridge and rice. They also buy a lot of electronics, because they hear that international companies are leaving Russia", the gold trader added.

According to Sberbank, one of the largest banks in Russia, domestic demand for gold and other precious metals has more than quadrupled in a week. The bank is even said to be planning to open more branches for the sale of precious metals 'To help people protect their savings'.

Gold as a strategic asset

The Russian central bank will stop buying gold as of March 15. The question is what will happen to the export of the precious metal. If domestic demand is high enough, it means that Russia will export less gold than it has in recent years. The gold mining sector of Russia is the second largest producer in the world with an annual production of 330 tonnes. In a scenario with more economic warfare, Russia may decide to keep its gold production as a strategic reserve and stop exporting. On Friday 18 March at 15:00, the Russian central bank will hold a announcement but further details are still lacking. We will continue to do so

This contribution comes from Geotrendlines

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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.