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Russians buy record amount of gold bullion in 2022

Kitco News

(Kitco News) Russian investors purchased a record amount of gold bullion last year as the country dealt with sanctions in response to its invasion of Ukraine, and the economy faced many risks.

More than 50 metric tons of physical gold was purchased by Russian citizens in 2022, according to a local publication Vedomosti, which surveyed major Russian banks.

Five out of the 13 largest Russian banks sold 57 tons of physical bullion last year, Vedomosti reported. This total is already more than the 40-50 tons Russian Finance Ministry forecasted back in December, the publication said.

To put this new trend into perspective, Russian citizens bought under six tons of gold in 2021, according to the World Gold Council data.

Russia encouraged its citizens to buy gold last year with two significant changes to the tax code. Officials scrapped the 20% value-added tax on metals purchases back in March and removed 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.

Earlier this year, local Russian banks even faced shortages of smaller troy-ounce gold bars, which are popular with retail investors. 

The main issue was Russian refiners being used to supply banks with large ingots for bulk purchases, as this was the primary investment focus in the past, Vedomosti reported.

Refiners began to shift the production to smaller-sized minted bars, but the process required major restructuring and took 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.

Russians have also embraced unallocated metal accounts as protection against risk and inflation this year. 

Gold gives local investors freedom to diversify and protect their portfolio during "increased uncertainty," VTB senior vice president Dmitriy Breytenbikher said last year.

"Gold has always been a defensive tool, showing its best qualities with the horizon of three to five years. In a situation with a high degree of uncertainty, this asset allows you to diversify your portfolio, fix your savings and preserve capital for future generations," Breytenbikher said.

The choice of gold is paying off well at the start of 2023, with the precious metal trading near $1,900 an ounce as markets price in cooling inflation and a pivot by the Federal Reserve.

At the time of writing, February Comes gold futures were at $1,895.90 an ounce, up 4% since the start of the year.

"Gold is currently internalizing what is going to happen in 2023 à there will be a Fed slowdown, a Fed pivot, a recession, and then finally a liquidity injection, where the money supply will ultimately rise again in 2023," MKS PAMP metals strategist Nicky Shiels said Thursday.

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