Russia's central bank has been forced to step up its gold buying this year to absorb domestic production that Western sanctions are making it hard for miners to sell abroad, and to boost liquidity in its foreign reserves, sources said. Most Russian gold mine production is sold to domestic commercial banks, such as Sberbank or VTB, which can then sell the metal on to either the central bank or to foreign banks.
This year, sources say, foreign banks are holding off buying Russian gold after Western powers implemented sanctions against the country over the Ukraine crisis. The central bank has therefore had no choice but take domestic mine production that cannot be sold to foreign banks, two sources said, and has bought most of the metal that commercial banks had available. "This is one measure that the central bank has taken to go through this difficult period for commercial banks and most importantly to boost liquidity," a source close to the situation said on the sidelines of the London Bullion Market Association annual conference in Peru.
While the sanctions do not expressly prohibit them from buying gold, Western banks are cautious over any business done with their Russian counterparts, sources said. "So, it is likely that we could see a period of stabilisation, when the question around sanctions is resolved, as the central bank will stop adding more gold to its reserves," a second source added. Russia has stepped up its gold buying significantly this year, data from the World Gold Council showed, adding nearly 115 tonnes of gold to its reserves in the year to date, against 77.5 tonnes in the whole of 2013 and 75 tonnes in 2012.
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