Amidst the western ban on Russian gold over the war in Ukraine, Russia has significantly increased its gold exports to China. This has caught the eye of the world for one main reason - Why is Russia exporting its precious metal reserves?
It seems that the primary goal of Russia and China, and particularly the trade of gold between the two anti-west country(s), is to devalue the dollar and build a gold-backed currency.
The Impact of American Sanctions on Russia
The USA and its western allies rapidly imposed trade and economic sanctions on Russia following Ukraine's invasion by Russia. The latest round of sanctions regarding the U.S. ban on gold transactions with Russia has been drawing varied reactions from experts across the gold market.
The U.S. specified that any gold transaction linked to the Central Bank of the Russian Federation falls under the existing sanctions, and it is likely to attract secondary sanctions in case of violations.
Russia is Trading Gold with China
In July, China imported $108.8 million worth of gold from Russia - a 750% rise from June and a 4,800% increase from the same month last year. Reports state that the gold imported to China included raw and semi-finished forms of gold, including bars.
China's purchases of gold bullion have increased since the U.S., Canada, Britain, Japan, Switzerland, and the European Union banned gold exports from Russia following Russia's invasion of Ukraine.
Russian Gold Reserves
Within the last decade, Russia has been progressively and steadily acquiring gold. In the first quarter of 2019 alone, Russia purchased 56 tonnes of gold. 37.3 of these were in January and February.
Today, Russia's official gold reserves stand at 2,150.5 tonnes. At current market prices, Russia's total reserves stand at approximately $491 billion US dollars. This figure includes Russia's foreign exchange reserves. 19.1% of Russian reserves is gold reserves, which are valued at 93.3 billion US Dollars.
Russia and several other countries have been acquiring more gold instead of relying on the US dollar. In April and May of 2018, 85% of Russian US Treasury holdings were liquidated, and $90 billion of Treasuries were discarded. To date, Russia has significantly reduced their reliance on the US Dollar and Euro.
Conclusion
Russia's gold flow into China will continue to increase as the two nations have a solid diplomatic partnership. Irrespective of whether the war ends in the future, chances are that this new relationship has already achieved Russia's primary goal of boosting the value of its currency as an alternative to the US dollar.
