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Russian banks face gold bar shortages as local demand surges

Kitco News

(Kitco News) As Russian investors embrace gold this year, local banks face shortages of smaller troy-ounce gold bars.

The surge in demand comes after Russia scrapped the 20% value-added tax on metals purchases back in March and then got rid of the 13% income tax on the sale of gold for 2022-2023. The move was designed to encourage diversification into precious metals over foreign currencies, such as the U.S. dollar and euro.

The main issue with the current shortage is that Russian refiners are used to supplying banks with large ingots for bulk purchases, as this was the main investment focus in the past, Vedomosti reported. Refiners are already working to shift the production to smaller-sized minted bars, but it is not a quick transition and will take time.

Before the surge in demand from the local population, gold was primarily bought in bulk by the Russian central bank to be exported abroad. That is why refiners' main objective was to produce large bars.

Plus, it was cheaper for refiners to produce 12 kg ingots versus smaller ones that are popular with individual investors, said Promsvyazbank's director of the private capital department Evgeny Safonov. The most-in-demand gold bars with individual investors have been minted bars up to 1 kg in weight.

The problem of the limited production capacity is now being resolved, Russian commercial bank Uralsib's executive director of precious metals operations, Andrey Vasiliev, was quoted as saying.

To meet the demand, refiners need to develop the proper infrastructure, a representative of the Moscow Credit Bank was also quoted as saying.

VTB bank said it had sold 21 tons of gold bars to retail customers since March.

Russians have also embraced unallocated metal accounts as protection against risk and inflation. The country's largest lender Sberbank sold 100 tons of precious metals during the first nine months of the year after customers opened 300,000 new unallocated metal accounts.

Unallocated precious metal accounts mean the bank remains the owner of the precious metal bought, and the clients' accounts only get credited. Sberbank has developed the option of unallocated precious metals accounts to expedite the process of opening the account and selling precious metals.

According to the bank, nearly seven tonnes of that was gold, 89 tonnes was silver, and a tonne each of platinum and palladium. On gold, Russians spent around $550 million at Sberbank.

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