World Gold Council – Russia is the Largest Gold Buyer

(Kitco News) – Russia is the No. 1 “official” gold buyer in the world, with the country’s central bank acquiring 201 tonnes of the precious metal in 2016, the World Gold Council (WGC) said. In sharp contrast, Russian private purchases of the bullion remain extremely low.

“Russia is the largest official purchaser of gold in the world and the third-largest producer. But it has yet to reach its potential on international investment markets,” wrote Tatiana Fic, director of central banks and public policy for the WGC, in the September issue of Gold Investor.

The country’s central bank surpassed all others with its purchase of 201 tonnes of gold last year, beating the People’s Bank of China, which bought 80 tonnes and came in second, followed by the National Bank of Kazakhstan, which acquired 36 tonnes, the WGC pointed out.

Overall, the Russian central bank added a staggering 1,250 tonnes to its gold reserves during the past decade, increasing the total to 1,700 tonnes, Fic specified.

Reserve diversification is one of the primary reasons driving Russia to buy gold, according to Elvira Nabiullina, governor of the Bank of Russia.

The yellow metal is also a hedge against political and legal risks, Dmitry Tulin, the first deputy governor, stated in the past.

At the same time, Russia has stepped up gold production, nearly doubling it since 1995. “In the past ten years alone, the country has mined more than 2,000 tonnes of gold, with production of more than 300 tonnes expected this year, rising to 400 tonnes by 2030,” the WGC said, citing Sergey Kashuba, chairman of the Union of Gold Producers of Russia.

The WGC said that production growth is led by “privatization of state-controlled gold mining companies and consolidation of smaller gold producers.”

On the flip side, private purchases of gold are still extremely low in Russia, according to Fic, totaling just four tonnes last year. This figure is not even comparable to Chinese private investments of 285 tonnes, Germany’s 105 tonnes and America’s 93 tonnes.

The WGC pointed out that such low figures are not because of lack of demand, but due to a very high value-added tax (VAT) on gold bullion purchases levied on private individuals or institutions.

“The government, the Bank of Russia and commercial banks can purchase gold VAT free. But individual and institutional purchases of gold bars are subject to VAT of 18% – the highest rate in the world,” Fic explained.

However, things could change for the better in the near future, especially with the latest submission of the draft amendment to the tax code by the Russian government.

Deputy Finance Minister Aleksey Moiseev said he hoped the changes could be implemented by the end of 2017 to remove VAT from private gold purchases.

The WGC views the move a significant step forward. “In our view, opening up the domestic gold investment market could make a material difference to the Russian economy, the gold industry and the country’s position on the global gold stage,” Fic said.

By Anna Golubova

For Kitco News