Switzerland melts down more Russian gold

Switzerland Imported in August much more Russian gold than in previous months. According to new figures from Swiss customs, it was 5.7 tonnes of gold with a market value of $324 million. That was the highest single-month volume since April 2020. Remarkably, the gold came from the United Kingdom and was probably brought to Switzerland to be melted down. What does this say about the gold market?

As we wrote in March, Western countries have also imposed sanctions in response to the Russian invasionImposed to the gold trade. Russia has not been allowed to export gold to the EU and Switzerland since July. Also, the London Bullion Market Association (LBMA) has seen all major Russian smelters since March Deleted of the 'Good Delivery' list, which means that gold bars from these smelters are less tradable in London.

Melting down gold bars

These Western sanctions apply to all Russian gold bars produced since August 4. Gold bars produced before this date may still be officially traded, but will bear a stamp of 2022. And that turns out to be problematic, because the exact production date is difficult to determine. Many traders do not want to get their hands on these types of gold bars, for fear that they will violate sanctions.

This is probably also the reason why traders in the United Kingdom are now sending gold bars of Russian origin to Switzerland. There, Swiss smelters can melt down the taboo-ridden gold into new bars with a stamp that is accepted everywhere.

Russia plays an important role in the gold market, as its mining sector produces more than 300 tons of gold annually. In recent years, much of this precious metal has ended up in the United Kingdom, as many investment funds hold their physical gold holdings there. In 2021, Russia exported $15.2 billion worth of gold (84% of its total gold exports) to the United Kingdom. Last year, Russia also exported $1 billion worth of gold to Switzerland, a major hub in the international gold market.

Russia exports more gold to China

Due to the sanctions, this flow has now almost dried up, although there isDetours still some Russian gold on the market. But where does that leave the rest of the gold? According to the Russian financial newspaper RBC more and more precious metals have been moving towards China since the introduction of Western sanctions. In July, China imported $109 million worth of gold from Russia. This was more than eight times as many as in the previous month and even more than fifty times as many as in the same month last year. This increase coincides with the introduction of Western sanctions.

Until recently, China only imported raw gold from Russia, but in recent months it has increasingly been pure gold bars from Russian smelters. These gold bars are no longer welcome in Western countries, but still meet the standards of the Shanghai Gold Exchange. Other precious metals from Russia also find their way to China, such as platinum and palladium. These metals are particularly important for the automotive industry. For example, platinum exports rose from just $4.3 million in June to $25.5 million in July. According to RBC, Russia previously exported much more platinum to the United States.

What does this mean for the gold market?

The characteristic of gold is that it is a uniform product, the origin of which is difficult to trace. A gold bar with the stamp of a Russian smelter can still be traced, but if it is melted down and given a different stamp, this gold can be put back on the market. In a scenario in which the tightness in the physical gold market increases, premiums will rise to such an extent that it will become lucrative for traders to buy Russian gold through other suppliers, melt it down and offer it again at a premium in Western countries.

Because Russian smelters have lost their LBMA status, they are less able to export their precious metal to Western countries. That's probably why the Russian government wants to set up its own standard and trading platform. At the end of July, we already published an article about this Moscow World Standard as an alternative to the LBMA.

Have a look at us YouTube channel

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.