Russia has the largest gas reserves in the world and is currently Europe’s most important gas supplier. The gas giant traditionally earns its dollar income by exporting gas. Looking at the first quarter of 2020, Russia’s gold exports outstrip gas exports for the first time. What is the reason for this?

Russia suddenly steps on the gas with gold

importance of Russian natural gas in Europe is diminishing. Competition from Norway is pushing into the market and putting pressure on the Russian gas giant “Gazprom”. But the pressure from within Russia from the five private energy companies is also increasing.

Because the USA produces shale gas and exports it at the same time, the turnover of Russian gas companies is shrinking significantly. So the new decree of the Russian government to make it easier for gold mining companies to export gold is quite understandable.

Instead of one-off permits, permanent permits are now being issued by the highest state authority in order to minimise the obstacles to gold exports caused by the Corona crisis. According to the President of the Union of Russian Gold Producers (UGPR), Sergei Kashuba, the idea of exporting more gold on the basis of general licences has been on the minds of government decision-makers for a year now.

The Russian central bank no longer buys gold domestically

After China and Australia, Russia is the third largest gold producer in the world. Experts believe that Russian gold production will increase significantly this year and next. They forecast an annual growth rate of 3.7 %. With these immense production increases, Russia could oust China from the top position of the world’s gold producers by 2029.

“Russia’s gold production already grew by 5% in the 1st quarter of 2020, to 64,606 tonnes. At the same time, the Russian central bank is suspending its domestic gold purchases. This is an important step in deliberately reducing domestic demand for gold. This will enable Russia to easily meet foreign demand for gold,” says Killian West of the Berlin gold trader valvero.

The largest Russian gold producer “Polyus” is behind the reform of the Russian gold market. This concerns the equalization of the gold producers with the local commercial banks, but also the possibility to increasingly realize gold exports abroad. Without having to apply for one-time permits again and again.

The Corona crisis seems to have set the liberalisation process of Russian gold producers in motion in a sustainable manner. The crucial question is, what happens to the hoped-for increase in exports when the Russian central bank restarts its gold purchases?