EU Russia sanctions explained
The risk of US sanctions will lead to an increase in gold production in the Russian Federation
According to Fitch Solutions, the risks of further US sanctions "paradoxically" will lead to an increase in gold production in Russia.
Russia is expected to increase its gold production at a faster pace in 2020 and 2021, as the growing risks of new US sanctions push the Russian Central Bank to increase its reserves of the precious metal..
«Ongoing and expanding US sanctions on Russia will paradoxically support the country’s gold production in the short term», – according to the report of the consulting company Fitch Solutions.
«There is a growing risk that Russian state-owned banks could be frozen on all transactions in US dollar assets due to continued tensions in bilateral relations. This is pushing the Russian central bank to increase its gold reserves. As long as tensions remain with the US, domestic demand for gold will remain», – analysts believe.
US sanctions on Russia, first imposed in 2014 after the return of Crimea, have expanded in subsequent years. The mutual position of the two countries remains unstable, as the United States views Russia as the main threat to its national security, although the president Donald Trump always tried to achieve a warmer relationship.
This geopolitical uncertainty has been one of the reasons the Russian central bank has been increasing its gold holdings over the past few years..
At the same time, the Bank of Russia announced that it would stop purchasing from April. Head of the Central Bank Elvira Nabiullina explained that this step was taken so that Russia – one of the world’s largest gold producers – could export more, given the growing global demand for the precious metal.
According to her, this could increase Russia’s export revenues, thereby increasing the flow of foreign currency into the country..
In the longer term, an increase in the number of new mining projects could make Russia the largest gold producer in the world by 2029, leaving China and Australia behind, analysts at Fitch Solutions believe..
The consulting company projects gold production in Russia to grow from 11.3 Moz this year to 15.5 Moz in 2029, representing a 3.7% CAGR.
Fitch Solutions expects production in China, currently the largest in the world, to remain roughly stagnant between 2020 and 2029 with a CAGR of about 0.2%.
«This marks a marked slowdown from 3.1% CAGR over the previous 10-year period, the report said. – Gold production in China has faced problems due to strict environmental regulations and the closure of small mines, as well as due to a drop in gold mining in general».