How Effective Can Banning Gold from Russia Be?

Russia’s unprovoked invasion of Ukraine has resulted in a slew of economic sanctions from Western nations looking to harm its war efforts. These sanctions includes financial measures against Russia’s largest financial institutions, bans on Russian oil and natural gas, and sanctions against individuals and businesses that are thought to be close to the Kremlin.

More than four months after Russian troops invaded Ukraine, some leading Western nations are now working on the details of a ban on gold exports from Russia. The ban is expected to receive formal approval by the end of the week after the United Kingdom, the United States Canada, and Japan finalize the details of the ban and vote.

According to the London Bullion Market Association (LBMA), Russian gold that was produced before the sanction on Russian exports will be easily identifiable as it is marked and dated.

The forthcoming ban will officially codify what has been an unofficial ban on Russian gold in the London market. Since the LBMA, which represents the United Kingdom market for silver and gold bullion, struck Russian gold traders from its list of accredited traders in March, most UK buyers stopped trading Russian gold.

The UK government claimed at the time that this action was meant to hurt Russia’s war chest as many Russian oligarchs with ties to the Kremlin were turning to gold bullion to try and circumvent Western sanctions. Once the ban becomes official, Russian banks, mining companies and wealthy individuals will be unable to swap gold bullion for currencies, ideally lightening Russia’s war resources and hurting its war efforts in Ukraine.

Curiously, the ban on Russian gold may fail to impact the country’s gold significantly. Even the World Gold Council (WGC) acknowledged that the G7 ban wouldn’t have a major effect on the worldwide gold market, stating that there was enough supply to meet trading and fabrication needs.

The unofficial ban doesn’t seem to have had an impact on gold prices even though Russia is one of the world’s largest producers of gold. Fawad Razaqzada, a market analyst at London-based financial services firm City Index Group, says the ban on Russian gold has had no measurable effect on the global market as prices have fallen rather than risen due to limited supply. He said that this may be because the industry was already restricting Russian gold and getting gold bullion from other sources.

Razaqzada notes that the ban wasn’t meant to deal a death blow to Russia’s economy but rather to steadily chip away at it alongside other sanctions. Other suppliers such as Newmont Corporation (NYSE: NEM) (TSX: NGT) are more than qualified to bridge the supply gap created when Russian gold is restricted from being traded on the international market.

However, the ban hasn’t hurt Russia because the country simply directed its excess gold supply to Asian countries such as India and China which haven’t sanctioned Russian gold.

Overall, banning Russian gold will have a negligible effect on the country’s economy, Razaqzada said, because there is enough demand from Asian nations to counterbalance Western sanctions.

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