According to UK prime minister Boris Johnson, Britain and its Western allies will increase the economic pressure on Russia by examining whether more can be done to prevent President Vladimir Putin from accessing the country’s gold reserves.
However, gold market specialists say that, in practice, there’s very little Western nations can do.
Around 20 percent—$140bn—of Russia’s $630bn foreign currency reserves are held in gold, reportedly in vaults within Russia.
Ahead of a NATO meeting in Brussels, Johnson told LBC Radio that Western nations should now try to extend this approach to Russia’s gold, Reuters reported.
“We need to do more,” he said. “And so we need to do more economically. Can we do more to stop [Putin] using his gold reserves for instance, in addition to his cash reserves?
“The more pressure we apply now, particularly on things like gold, that I believe the more we can shorten the war,” Johnson said.
On 7 March, the London Bullion Market Association (LBMA) suspended all Russian refineries from its accredited list, meaning newly minted Russian gold bars can no longer be traded in London.
However, the LBMA said that bars produced by Russian refiners before the suspension would still be accepted.
The LBMA’s “Good Delivery” list is an international standard for gold trading, as most bullion banks will only handle metal produced by accredited refineries.
An LBMA Good Delivery bar is a standardised 400 troy ounce bar of 99.99 percent pure gold, worth around $775,000 at current prices.
The LBMA told New Money Review that gold mined in Russia makes up some 10 percent of annual global production, although it said it did not know how much of this comes into the international markets.
However, one London-based gold specialist disputed Johnson’s assertion that Western powers may be able to stop Putin using his bullion reserves as he pleases.
“If the gold bars were sold without change of marking then their provenance would be known if and when they appeared on the international market (and that’s a big ‘if’ had the original sale been sanction-busting),” the specialist said.
But there’s nothing preventing Russian gold from being melted down and recast as new bars, he went on, even if this meant the gold would then have to be traded away from financial centres like London and New York. This, however, might lead to a discount, he said.
“If the gold were melted and re-marked, it would have subsequently to be moved outside the formal boundaries of the international market which means it would not attain the full international market price,” he said.
“The issue is that, to all intents and purposes, gold is gold, and unlike most diamonds (for example), its provenance cannot be determined by, say, chemical analysis.”
Sign up here for the New Money Review newsletter
Click here for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes
Related content from New Money Review