G7 Set to Ban Russian Gold Imports

The G7 plans to add gold to its list of sanctions against Russia. This could have an impact on the global gold market. Just how much remains to be seen.

The United States, Britain, Japan and Canada announced a ban on Russian gold imports on Sunday, June 26. An official announcement from the G7 is expected on Tuesday.

“The United States has imposed unprecedented costs on Putin to deny him the revenue he needs to fund his war against Ukraine,” Biden said in a tweet on Sunday. “Together, the G7 will announce that we will ban the import of Russian gold, a major export that rakes in tens of billions of dollars for Russia.”

British Prime Minister Boris Johnson said the ban would “hit Russian oligarchs and strike at the heart of Putin’s war machine.”

Russia ranks as the world’s second-largest gold producer behind China. The country supplies just about 9.5% of the world’s gold. In 2021, Russian gold exports were valued at over $15 billion.

It remains unclear just how significantly the new sanctions will impact the world gold market. These aren’t the first sanctions on Russian gold. The London Bullion Market Association banned six Russian refineries from the Good Delivery List back in March. One analyst called the move a “rubber-stamping exercise of unofficial policies already in place.” And the two largest consumers of gold – China and India – will likely continue to buy metal from Russia.

But in the same way that we’ve seen a hefty increase in the price of oil, we could also see some upward movement in the price of gold as supplies tighten due to Russian sanctions.

Economist Thorsten Polleit said sanctioning Russia’s gold could have a bigger impact on the market. In a tweet, Polleit said he thinks it could potentially “blow up” the paper gold market. Most gold contracts are settled in dollars. But with growing geopolitical uncertainty and market volatility, there is a growing demand for physical gold. An increase in demand for physical gold coupled with a tighter supply due to sanctions could cause issues in the paper market. As another market analyst put it, “The Comex relies on settling paper contracts. If everyone demands physical delivery and warrant transfer, the paper market defaults.”

The ban on gold imports is part of broader sanctions levied against Russia since the invasion of Ukraine. Could this weaponization of the economy backfire?

In a recent interview with Kitco News, Agora Financial editor Byron King warned that it could.

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.”