Russia’s Second-Largest Bank Betting on Gold

Russia’s second-largest bank is betting on gold to boost profits in the midst of the COVID-19 pandemic and global economic slowdown.

According to a Bloomberg report, VTB Bank has prioritized gold trading in addition to lending to gold mining companies.

VTB Bank First Deputy Chairman Yuri Soloviev said precious metals mining – gold, along with silver, platinum and palladium – is one of the few sectors to benefit from the pandemic. And he expects strong support to continue as central banks keep on creating money and pumping it into the global economy.

In fact, the Federal Reserve has already promised it will keep interest rates at zero for years to come. It will continue QE infinity. It has made clear it plans to ignore any inflation threat. And there is no exit strategy from this extraordinary monetary policy. The printing presses in the Eccles Building will continue to churn out dollar bills. It is setting the stage for a major collapse in the dollar.

Other central banks, including the ECB, have followed the Fed’s lead.

Soloviev said VTB Bank’s profit from gold trading in 2020 has already exceeded the previous three years combined.

VTB Capital now ranks as Russia’s biggest gold buyer since the Central Bank of Russia put its buying program on hold last spring. According to Bloomberg, the bank held 59.5 tons of gold as of Oct. 1. That nearly equals the gold reserves held by Australia (60.7 tons as of June 2020).

In March, the Central Bank of Russia announced a plan to suspend gold-purchases for the time being, effective April 1. But there was immediate pressure on the bank to resume purchases. In early April, Russian banks asked the Central Bank of Russia to resume buying gold for its reserves as gold exports were hobbled by the coronavirus pandemic. In a letter released on April 29, the Russian central bank said it did not see any need to resume buying gold at the time, but added it would continue to monitor the situation in both the global gold market and the banking sector.

VTB Bank recently announced plans to launch an ETF backed by physical gold. Alex Metherell, co-head of global banking at VTB Capital, said Russia was an ideal place to start a gold ETF because the country has extensive gold reserves. In fact, Russia ranks third in the world in gold production behind China and Australia, and much of the yellow metal Russia mines remains in the country.

Gold has flowed into ETFs at record levels this year. So far in 2020, ETFs globally have added 1,003 tons of gold, taking total holdings to an all-time high of 3,880 tons.

ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy full ounces of gold at spot price. Since their purchase is just a number in a computer, they can trade their investment into another stock or cash pretty much whenever they want, even multiple times on the same day. Many speculative investors appreciate this liquidity.

Inflows of gold into ETFs are significant in their effect on the world gold market, pushing overall demand higher.

There are good reasons to invest in ETFs, but they aren’t a substitute for owning physical metal. In an overall investment strategy, SchiffGold recommends buying gold bullion first.