Russian gold is in the hands of shady firms

A worker uses a special tool to remove red-hot gold bars from their molds at the foundry at the JSC Krastsvetmet non-ferrous metals plant in Krasnoyarsk, Russia (Bloomberg photo by Andrey Rudakov)

Russian bullion became taboo after the invasion of Ukraine, and were blocked by the import bans of the Group of Seven countries and the European Union last summer. I think so a big headache for Russia’s huge gold industry: its own market can’t absorb the $20 billion worth of metal mined each yearleaving the central bank or foreign buyers to take the rest.

Since then, dozens of logistics companies and small dealers in the gold sector have taken over the Russian bullion trade, according to data from trade tracking company ImportGenius based on Russian customs figures for six months through August. And instead of mass shipments to London to be deposited in the vaults of major bullion banks, such as JPMorgan Chase and HSBC, Russian supplies are slowly making their way to places like the United Arab Emirates, Hong Kong and Turkey, where there are no restrictions.

It’s another example of how global commodity trade is being thrown off course in the wake of Russia’s war in Ukraine. G-7 and EU sanctions ban the import of Russian gold into their own markets and prohibit companies based in them from trading in it in other places. But companies from other countries can continue to trade Russian metal due to the absence of secondary sanctions, so there is no indication that any rules are being broken.

The global transport of precious metals is dominated by security companies such as Brink’s and Loomiswhich stopped transporting Russian bullion after the start of the war.

The gap left has been filled by companies such as VPower Finance Security (Hong Kong), which claims to transport cash and gold for some of the biggest Chinese banks. Between March and August 2022, it handled more than $300 million in shipments of Russian gold through Hong Kong, according to data from ImportGenius.

It is a fraction of the $1.2 billion of Russian gold delivered to JPMorgan in the first two months of 2022 alone, highlighting the challenge of selling large volumes immediately after the war began. But new sales channels are helping, and miners Polymetal International and Polyus PJSC have been able to withdraw unsold reserves they built up in the first half of 2022.

The UAE has become the top destination for Russian gold, with more than $500 million exported in the six months to August. Most of the buyers are based in Dubai, which has long been a hub for trading precious metals between East and West. Paloma Precious DMCC, a trader with offices in Dubai’s free zone and gold souk, imported $109 million, according to the data.

Al Bahrain Jewellers, another souq-based dealer, made off with more than $50 million worth of gold from Russia. The metal was sourced through the Abu Dhabi subsidiary of Open Mineral, a trading company founded by former Glencore executives whose major shareholders include the sovereign wealth fund Mubadala Investment.

Some Dubai dealers seem to have little experience specializing in precious metals. Actava Trading DMCC, which imported some $25 million of Russian gold in August, describes itself as a crop trader focused on the Black Sea region.

Dove and Open Ore They declined to comment on the data. VPower, Al Bahrain Jewelers and Actava did not respond to emails and phone calls seeking feedback.

Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan (AFP)
Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan (AFP)

Türkiye has become another key destinationwith some $305 million of Russian gold passing through Istanbul airport in the March-August period, ImportGenius data shows.

There have also been changes in who transacts within Russia. Previously, the country’s exports were dominated by big lenders such as VTB Bank PJSC and Sberbank PJSC, but sanctions on them have caused smaller banks to take more control. Miners and refiners have also begun to play a larger role in shipping.

The Central Bank of Russia has also bought about a million ounces in the last year. The sanctions imposed by the United States on Russia’s foreign exchange reserves have prompted this country to seek alternatives to the dollar.

(c) 2023, Bloomberg

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