Russia's central bank resumed buying gold from local banks on Monday, but set a fixed price for the precious metal. Two weeks ago, Russia's central bank announced that it would stop buying official gold from local banks because of a surge in demand from ordinary consumers.
Russia's central bank said on Friday that it would pay a fixed price of 5000 roubles ($52) per gram from March 28 to June 30, starting this week. This is lower than the current market value of about $68.
The central bank added that resuming purchases would ensure local gold supply and uninterrupted production.
This is because Russians bought a lot of gold in March to protect their savings if the rouble plummeted. Russian banks reported that consumers were investing in gold nuggets and coins. Sberbank, Russia's largest financial institution, reported that demand for gold and palladium had quadrupled in the past few weeks. At the same time, the Russian Ministry of Finance also called gold an ideal substitute for the dollar.
Setting a fixed price for gold reminds some analysts of what the United States did in the gold standard era. The period from 1879 to 1914 is known as the classic gold standard, during which an ounce of gold represented $21. Then in the 1930s, the United States banned gold holdings and raised the exchange rate of the dollar against gold from $20.67 to $35. Its price remained fixed until 1971 when the, Richard Nixon stopped the convertibility of dollars into gold, which meant that other countries could no longer exchange dollars for gold. In 1973, the gold standard was abolished.
"there is a precedent," said Everett Millman, an expert on precious metals at Gainesville Coins. This leads me to believe that Russia's intention is to link the value of the rouble directly to the value of gold. Setting a fixed rouble price per gram of gold seems to be their intention. This is important when it comes to how Russia seeks money outside the dollar system and manages its central bank financing. " 'Gold is one of the most reasonable international currencies when you try to avoid sanctions,'he added.
Last week, the US Treasury banned all gold trading with the central bank of Russia.
"Americans are prohibited from participating in any transaction involving the central bank of the Russian Federation, the Russian Federation State Wealth Fund or the Russian Federation Ministry of Finance, including gold-related transactions," the US Treasury said on its website. "
Millman says such sanctions may be effective to some extent. If it were just to force other partners to avoid gold deals with Russia, it could have a significant impact. At the same time, given that the global gold market is likely to be quite opaque, it will be much more difficult to enforce such restrictions or regulation. "
In response to escalating Western sanctions over the war between Russia and Ukraine, Moscow may require unfriendly countries to pay for Russian gas in rubles or gold, the chairman of the Russian State Duma Energy Commission said. "if they want to buy, let them use hard currency," Pavel Zavalny said at a news conference on Thursday. "for us, this is gold, or pay in a convenient way, this is the national currency." Russia is also considering accepting bitcoin in oil and gas exports and becoming more flexible in payment options with friendly countries.
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