(Kitco News) - Members of the Group of Seven, representing the top economies in the world, are adding gold to their sanctions against Russia because of its ongoing invasion of Ukraine.
Sunday, at the G7 meeting, the United States, Britain, Japan, and Canada announced they would ban imports of new gold produced in Russia.
The latest news is not having much impact on gold prices. August Comex gold futures are starting the new trading week in roughly neutral territory, last trading at $1,834.70 an ounce, up 0.24% on the day.
Following the announcement, U.S. President Joe Biden said that the new gold ban would deprive Russia of tens of billions of dollars the pariah nation needs to fund its war in Ukraine.
Russia is the world's second-largest gold producer, representing 9.5% of the global supply. Last year Russia's gold exports were valued at more than $15 billion. The new sanction could have the biggest impact on London's gold market. According to Bloomberg, 28% of Russian gold was exported to London.
British Prime Minister Boris Johnson said the ban would significantly impact Russia's economy.
"The measures we have announced today will directly hit Russian oligarchs and strike at the heart of Putin's war machine," he said in a statement. "Putin is squandering his dwindling resources on this pointless and barbaric war. He is bankrolling his ego at the expense of both the Ukrainian and Russian people. We need to starve the Putin regime of its funding. The U.K. and our allies are doing just that."
However, some analysts have raised doubts about the latest sanction's impact on Russia. The G7 announcement comes months after the industry took its own steps to block Russian gold from entering the marketplace.
In early March, just after Russia invaded Ukraine, the London Bullion Market Association banned six Russian refineries from the Good Delivery List.
At the time, the LBMA noted that the ban was not expected to significantly impact the global gold market as Russia's gold production is primarily domestic.
The official ban on Russian gold could have a bigger impact on the market. Thorsten Polleit, Chief Economist of Degussa, said that the drop in physical metal could lead to issues in the paper market.
While most gold futures contracts are settled in dollars, the growing geopolitical uncertainty and market volatility are creating strong demand for physical gold.
Get some physical gold if you can. https://t.co/Stbn4wgZ6u
— Thorsten Polleit (@ThorstenPolleit) June 26, 2022
Other analysts have noted that the new sanction would only apply to G7 nations. The two largest gold-consuming countries: China and India, could continue to buy Russia's precious metals. Both nations have been sympathetic to Russia.
In a recent interview with Kitco News, Byron King, editor at Agora Financial, said that sanctions western nations are playing on Russia could backfire as oil and food costs continue to rise.
He added that weaponizing the U.S. dollar against Russia could have major repercussions for the U.S. economy.
"The thing with weapons is that they are meant to be destroyed. You shoot a bullet, launch a rocket or explode a bomb; these weapons are destroyed once they are used. When you weaponize the U.S. dollar, you risk blowing up your currency."
King said that he expects gold prices to continue to rise and recommends investors hold some physical in their portfolio as a safe-haven asset and inflation hedge.
