Putin’s Gold Plans
Not a finalized article, but just a draft I keep postponing posting because of lack of time for a thorough analysis:
Probably in order to undermine the US’ so-called “paper dollar” game the US plays on the international market ever since 1971, Putin encourages the Russian population to quit holding their bank deposits in dollars or even Euros, but rather to buy
gold:
“Since 1971, U.S. dollar denominated currency reserves are not convertible into gold. They are simply electronic dollar credits invested mainly in claims to the U.S. Government (U.S. Treasuries). So, the backing of the ruble strongly depends on U.S. fiscal and monetary policies.”
“Polyus President Yevgeny Ivanov said gold could become an alternative investment tool for Russians together with the U.S. dollar and the euro.”
I am not a good economist, not at all, but to me this seems a pretty savage measure.
One has to have a powerful currency, backed by gold in the Central Bank, if possible, in order to be considered a financially powerful state, it’s true.
But the game Putin intends to play against the American financial dominance is hard and dangerous.
He could play it just to defend Russia from the negative repercussions caused by the dollar, but playing solely on gold can’t be a long-term strategy.
Therefore does he intend to strengthen the ruble? Will it become a reliable international currency? Now this looks like a phantasmagoric dream.
First of all Putin intends, like with other branches, to have the gold industry controlled by the state, namely by the new gold company Polyus.
Polyus intends to be the supervisor of the Russian gold industry and to integrate the maiNorilsk's Polyus gold subsidiary
and its 20 percent stake in South Africa‘s gold fields, as is stated in the article below:
“ The new company, Polyus Gold, to be created in March 2006 and listed in Russia and abroad, will include Norilsk's Polyus gold subsidiary and its 20 percent stake in South Africa's Gold Fields, the world's fourth largest gold producer.”
This way Putin intends to have the foreign infiltrations in the Russian gold mining industry under his direct control:
“Holders of Norilsk shares or American Depositary Receipts at January 1, 2006 will be entitled to Polyus Gold shares, proportional to their shareholding in Norilsk.”
“In May 2006 a Level 1 ADR programme will be established and holders of Norilsk's ADRs will receive Polyus Gold ADRs.”
“Polyus is snapping up the country's gold deposits and intends
to triple output by 2010/2011 from 34 tonnes produced last year.”
I’m not sure if the fact that Putin promised the legalization of private companies’ involvement in the gold industry has anything to do with the foreign companies, respectively mainly with the US and Israel:
“The president said private companies had to be involved in geological surveying, while mining companies had to concentrate on prospecting.”
For more enlightenment on the issue read the full-length article below, as well as the series of articles posted at the following
link:
~Vera
Deposits, Rubles Or Coins? |
| The majority of the population neither has the time nor knowledge to look into the alternative ways of investing their savings – hence the continuing popularity of bank deposits. Alternative vehicles such as mutual funds and stocks have been compromised in the opinion of the Russian population (due to the well known MMM affair as well as
many others), whereas commercial banks have also lost a lot of trust during the 1998 crisis. |
Some paths for investment (such as utilizing financial instruments to make portfolio investments in real estate) are not well suited to small investors, and are still not very well developed. So, in the situation of discredited or underdeveloped alternatives, and also because of a certain inertia in the minds of the common people, the largest share of retail savings is currently accumulated by the regional banks of Sberbank of Russia.
Nevertheless, I think that the local subsidiaries
of foreign banks will also be well positioned to get a bigger share of that market in the future.
The conglomerate of banks that is called by a collective name of Sberbank is a monopoly-like structure that aims to preserve the semblance that deposits placed with it are backed by the state and by their “conservative” banking practice.
In fact, it is a rather magical structure: regional banks of the Savings Bank of Russian Federation do not seem to have any association with it, because they are 60.57 percent owned by the Central Bank of Russia, whereas other shareholders are not disclosed. The name of the bank in St. Petersburg is “Joint-stock Commercial Savings Bank of the Russian Federation - Northwest
Regional Bank”, and its major shareholder is the Central Bank of Russia.
So, regional banks have their own balance sheets and their own financial policies that have little connection to the Savings Bank of the Russian Federation.
In essence, what people in Russia are still calling Sberbank, is in reality a number of independent regional banks associated through a common majority shareholder (the Central Bank of Russia), and through a common word in their names - Sberbank.
According to the Russian civil code, shareholders cannot be held accountable
for the liabilities of their subsidiaries (beyond their investment in the equity capital), unless it is proven that shareholders have intentionally caused the losses of their subsidiaries.
I think that from the ethical standpoint, the behavior of Sberbank-like regional banks is incorrect, because, as a matter of fact, they present themselves as a single state bank, when in reality they are independent banks.
Playing on Sberbank’s reputation with the public, which does not understand the implications of the bank’s current organizational and legal structure, they attract the
savings of Russian people at low rates.
These low rates are explained by the psychological and historical perception of Sberbank as a huge state-owned bank that will not be allowed to fail - thus, the risk premium is non-existent.
However, this ethically contestable conduct gives regional Russian elites a unique chance to attract the vast resources of a misinformed population at practically no cost (below the rate of inflation).
This process is also helped by the active propaganda
of allegedly low inflation that is for some reason destined to fall in the future, as well as the idea that Sberbank-like banks are intrinsically safe.
For example, the web site of the “Joint-stock Commercial Savings Bank of the Russian Federation – Northwest Regional Bank” (note: no affiliation to “Joint-stock Commercial Savings Bank of the Russian Federation”) says that it has more than 150 years of history (officially, in fact, it dates from 1991, and was “reorganized” in 2001), which was mysteriously uninterrupted over the past 85 years.
So, in short, the answer to the question of why the population still holds money in
bank deposits is long-standing habit and mass lack of awareness.
Using the terminology of the web site of the Northwest Bank of Sberbank (which states that the “Savings bank was formally preserved in 1918”, although all savings in it – the history on the web site continues - were either lost due to inflation, or expropriated), in 83 years, after reorganization, we can see that the name of Sberbank was formally preserved.
As far the ruble is concerned, ideally such a calculation unit should not be used when accounting profits. Unfortunately for the country, the ruble is not backed by either a diversified economy, or by the country’s national wealth, nor by a well
thought-out long-term economic and monetary policy. If rubles were indeed backed by Russia’s wealth (including natural resources), the ruble could have been a rather popular international currency, like the CAD, AUD or NOK.
Now, take a ruble note and attentively look at it. Try to find where it says that the ruble is the official tender for all debts, private and public, on the territory of the Russian Federation; or that it is backed by Russian assets (Soviet money said that). If you can’t find that, then it is reasonable to conclude that ruble is merely a calculation unit, not even a bank note or a treasury note, but merely a “Card of the Bank of Russia”.
I have not heard of such a financial instrument. So, investments through alternative instruments are additionally impeded by the fact that Russia simply seems to lack a credible national currency that could be regarded as a store of value. Hence, no serious investors are taking big stakes in this game.
Exchange rate stability of the ruble in the medium-term is to a large extent (although not entirely) predicated by the extent to which it is backed with USD reserves of the Central Bank of Russia (I am not saying gold-currency reserves, because the share of U.S. dollars in the reserves still prevails, while the share of gold is minimal), and by fluctuations
of world commodity prices.
So, what are the Central Bank of Russia’s U.S. dollar reserves?
Since 1971, U.S. dollar denominated currency reserves are not convertible into gold. They are simply electronic dollar credits invested mainly in claims to the U.S. Government (U.S. Treasuries). So, the backing of the ruble strongly depends on U.S. fiscal and monetary policies.
How many people in Russia understand this link and the complex policies in the United States?
Or, how many people in Russia understand the underlying reasons for fluctuations of world commodity prices?
One can have an independent judgement on these issues only if one has a fundamental knowledge of economic and, desirably, certain humanitarian disciplines.
The opinion
among some economists in Russia and abroad is that investments in commodities (either directly into physical assets or indirectly through financial instruments), including gold and silver, depending on the investor’s level of conservatism and preferred leverage, are a viable alternative to investments in speculative financial paper or overvalued real estate.
Due to the underdeveloped state of Russia’s financial market and fragmented investment opportunities, the simplest method for citizens of the country to invest in liquid commodities is through the purchase of the so called investment coins (for example, zolotoy chervonets) that are VAT exempt.
In current global macroeconomic conditions, given the right strategy, investments into such assets can become a very rewarding alternative, while for common Russians this could be a very good way to secure long-term preservation of their family’s hard-earned capital.
Igor Yegorov is St. Petersburg office director at the U.S-Russia Center for Entrepreneurship (CFE)
Wednesday, 23 November 2005
Russia: Putin Wants More Gold
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Russian President Vladimir Putin has called on the domestic gold mining industry to increase its annual output so that the "[Russian population can find in gold an investment alternative to the dollar and euro," Russian news agencies reported.
In comments made in Magadan Oblast on 22 November, Putin said that, according to some experts, Russia has the second or third largest gold reserves in the world, ITAR-TASS reported. "There
is a wide gap between the amount of gold we can produce and the amount we are producing in reality," Putin said.
In 2004, according to goldsheetlinks.com, Russia was the fifth-largest international gold producer after South Africa, Australia, United States, and China.
The Russian president stopped off in Magadan on his way back from a seven-day trip to Asia. Magadan is traditionally Russia's leading gold-extracting region.
Putin also expressed concerns that gold reserves are being depleted, while Russian geologists have been slow to find new deposits.
The president also said that gold is a good investment for Russian citizens, although many are deterred by the 20 percent VAT on buying precious metals. "The reduction of taxes, in particular VAT, on the purchase of precious metals or investing in them is an idea worth considering," Putin said.
Gold Diggers
Putin said that he supports the idea, advanced by the Nature Ministry, that would allow private citizens to engage in gold extraction and production. He also suggested that Russia's Central Bank should increase the share of gold in its reserves.
His remarks come after reports that the world price of gold reached an 18-year peak at $492.90 an ounce on 22 November, bloomberg.com reported.
Speaking after Putin, Nature Minister Yurii Trutnev said that currently gold extraction is the prerogative of companies. However, he added that illegal prospecting is so widespread that legalization of the existing practice would make sense.
Trutnev said that in 2005 Russia will produce 168 tons of gold. By 2015, he said it will increase production to 250 tons per year.
He also said that his ministry has drastically increased investments in the gold sector from 240 million rubles ($8.3 million) in 2004 to 1.5 billion rubles in 2005. That figure, he said, will likely be 2.1 billion in 2006. By 2010, Trutnev said the ministry will have invested 32 billion rubles into the gold sector.
Private gold diggers will have no access to the large deposits, but mainly to remote and exhausted mines. Trutnev said that he is not expecting a "gold rush" and that citizens still need to obtain a license from the state before prospecting.
Finance Minister Aleksei Kudrin, speaking in Magadan, backed Trutnev and said it would do no harm to allow private individuals to prospect for gold, RIA-Novosti reported on 22 November.
In 2004, according to goldsheetlinks.com, Russia was the fifth-largest international gold producer after South Africa, Australia, United States, and China.
The Russian president stopped off in Magadan on his way back from a seven-day trip to Asia. Magadan is traditionally Russia's leading gold-extracting region.
Putin also expressed concerns that gold reserves are being depleted, while Russian geologists have been slow to find new deposits.
The president also said that gold is a good investment for Russian citizens, although many are deterred by the 20 percent VAT on buying precious metals. "The reduction of taxes, in particular VAT, on the purchase of precious metals or investing in them is an idea worth considering," Putin said.
Gold Diggers
Putin said that he supports the idea, advanced by the Nature Ministry, that would allow private citizens to engage in gold extraction and production. He also suggested that Russia's Central Bank should increase the share of gold in its reserves.
His remarks come after reports that the world price of gold reached an 18-year peak at $492.90 an ounce on 22 November, bloomberg.com reported.
Speaking after Putin, Nature Minister Yurii Trutnev said that currently gold extraction is the prerogative of companies. However, he added that illegal prospecting is so widespread that legalization of the existing practice would make sense.
Trutnev said that in 2005 Russia will produce 168 tons of gold. By 2015, he said it will increase production to 250 tons per year.
He also said that his ministry has drastically increased investments in the gold sector from 240 million rubles ($8.3 million) in 2004 to 1.5 billion rubles in 2005. That figure, he said, will likely be 2.1 billion in 2006. By 2010, Trutnev said the ministry will have invested 32 billion rubles into the gold sector.
Private gold diggers will have no access to the large deposits, but mainly to remote and exhausted mines. Trutnev said that he is not expecting a "gold rush" and that citizens still need to obtain a license from the state before prospecting.
Finance Minister Aleksei Kudrin, speaking in Magadan, backed Trutnev and said it would do no harm to allow private individuals to prospect for gold, RIA-Novosti reported on 22 November.
WRAP: Putin urges government to work with business in gold mining | |||||
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MAGADAN, November 22 (RIA Novosti) - Russian President Vladimir Putin
instructed the government Tuesday to draw up a program for cooperation with businessmen in developing the gold mining sector, and the finance and natural resources ministers presented their own proposals to boost gold production.
In his concluding remarks at a gold mining conference in the Russian gold-rich port city of Magadan in the Far East, Putin said issues relating to the gold production infrastructure had to be addressed jointly by the government and businessmen.
Putin said the majority of gold mines were in remote hard-to-access places with poor transportation, energy and social infrastructures.
"This substantially reduces the commercial
efficiency of gold mining projects," Putin said.
Putin also proposed a set of measures, including tax changes, to increase the profitability of developing remote gold mines, as well as oil and gas fields, saying the state should take steps to boost geological surveying.
"It is necessary to work out a set of measures to encourage prospecting and surveying," Putin said. "I believe the state should play a significant role in this sphere."
He said the Natural Resources Ministry should draw up proposals on the implementation of federal programs on prediction and drilling.
The president said private companies had to be involved in geological surveying, while mining companies had to concentrate on prospecting.
Putin also said state gold mining regulations had to be more flexible and efficient.
"Another issue is to provide processing and refining companies with a full and balanced load," Putin said.
These companies' potential in terms of interregional cooperation and external economic relations must be increased, he said.
The economic and legal conditions for gold mining should provide a stimulus to reach the full potential of all types of mines, Putin said.
This will also help guarantee stable employment in the sector and a higher standard of living in gold mining regions, the president said.
Natural Resources Minister Yury Trutnev proposed that private individuals should be allowed into gold mining.
"We support the idea that private individuals should be able to mine gold, as this idea will legalize something they do
anyway," Trutnev said, adding that this would yield extra amounts of gold for the state.
Trutnev said gold prospecting was better funded than other types of geological surveying, which was not fortuitous because it was not merely about "Russia's gold reserves but about the welfare of its northern regions, Magadan and Chukotka.
"Prospecting efforts pay back quickly, given large capital investment," Trutnev said.
Finance Minister Alexei Kudrin said his ministry did not object to extending gold mining rights to individuals. "
"Access [to gold production] for private individuals is not incorrect in principle," Kudrin said.
Kudrin also said the gold production tax rate could be differentiated, but only given a sound administration system.
Trutnev said Russia was expected to produce 168 metric tons of gold in 2005 and would increase the figure to an annual 250 tons by 2015.
"By 2015, we will increase production by 50-60% and reach 250 tons," Trutnev said, adding that the current annual production was worth about $104 million.
Trutnev said investment in the industry totalled about $16 million in 2004 and about $52 million in 2005. The ministry plans to invest up to $73 million in 2006 and more than $1 billion until 2010.
Russia is the world's fifth leading primary gold producer after South Africa, the United States, Australia and Canada. Its gold resources are mostly concentrated in Siberia and the Far East.
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| Catoca to Inaugurate Diamonds Treatment Plant | | ||
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| | By Jeanette Goldman | Posted: 11/17/2005 2:12 PM | |
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| | (Rapaport...November 17, 2005) The Catoca Mining Society will inaugurate its second diamond treating plant, Modulo II, on November 18, reported the Angola Press. The factory, estimated to be worth more than $90 million, is equipped with seven generators and state-of-the art technology from Russia and will employ 300 workers. The factory will have a production capacity of 12,700 tons and will include an area for preparation, separation, and finishing of diamonds in addition to two mills, nine conveyor belts and an on-line simulator controlling the density and temperatures of the mills. Catoca is comprised of Angola's state mining company, Endiama, Russia's state mining company ALROSA, and the Daumonty finance company from Israel, and Odebrecht from Brazil. Catoca handles prospecting, treatment, and selling of diamonds extracted from kimberlitic deposit of the Catoca area. In the near term, the factory will treat four million tons extracted from the Catoca region, which is regarded as the world's fourth largest kimberlite. Catoca Mining Society was established a decade ago and currently employs 3,296 employees, 90 percent of which are residents of Angola. | | |
Expensive oil, unstable forex market push gold price up | |||||
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MOSCOW, November 30 (RIA Novosti) - The unprecedented growth in the gold price has been caused by the high oil price, and the unstable forex market, experts with Russian investment companies
said Wednesday.
The gold price has been setting records on world markets during 2005. On November 29, gold cost $502.3 per troy ounce, the highest price for 18 years.
According to the experts, gold remains the only reliable asset against a backdrop of high oil prices, and instability on the forex market. Oil prices are the main factor influencing gold price movements.
Vladimir Abramov, an analyst with Globex Bank, said gold was the only reliable instrument in which to invest petrodollars. "Therefore, the market focuses on gold."
Yevgeny Shago, an
expert with the Region Group, agreed that gold had become "an alternative, reliable and liquid asset" since the euro's slide against the dollar.
If the European Central Bank increases the discount rate, the gold price could stop growing and could even fall by 5%, he added.
According to Abramov, gold prices would vary from $480-520 per troy ounce by the end of 2005.
The experts also said plans of developing countries to increase the share of gold in their central bank reserves could also influence the market.
Shago said the amount of gold mined had
little influence on its price. He added that some 2,500-2,700 tons of gold are annually produced in the world, including 180-190 tons in Russia, which takes fifth place among gold mining countries.
Pavel Polukhin, an analyst with Olma investment group, said demand for gold on Asian markets also boosted the gold price.
Russian president supports VAT reduction on ingots purchases | |||||
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MAGADAN, November 22 (RIA Novosti) - Russian President Vladimir Putin said Tuesday he supported a proposal to cut the VAT on purchases of gold ingots (up to 1 kg) by Russians.
"Tax cuts, primarily VAT, for Russian citizens who purchase precious metals and invest in them are worth considering," Putin said in response to a proposal made by Russia's Polyus gold mining company.
Polyus President Yevgeny Ivanov said gold could become an alternative investment tool for Russians together with the U.S. dollar and the euro. But, the 20% VAT on ingots purchases still stands in the way, he added.
Putin has also supported Ivanov's proposal to issue licenses for
mining companies allowing them to work on foreign markets.
Norilsk offers buyout to gold spinoff objectors
Thu Nov 24, 2005 12:33 PM GMT
MOSCOW (Reuters) - Russian metals giant Norilsk Nickel offered on Thursday to buy out minority shareholders who did not support its plan to spin off gold unit Polyus at a substantial discount to its market share price.
Shareholders voted overwhelmingly on September 30 in favour of spinning off Polyus into a separate company.
Holders of 5 percent of Norilsk's shares who did not vote, or voted against the spin-off, will be offered cash for their shares.
The price of the offer was set at 1,855 roubles per share -- over 20 percent below the current market price of Norilsk shares of $82.05.
Norilsk said in a statement it would offer to buy back 10.8 million shares between November 24 and December 14, although the company does not expect the offer to meet much interest.
"Today the price is some $20 higher than it was when the
redemption price was announced. Therefore we do not rule out that some of the shareholders may prefer to sell their stakes on the market," Norilsk spokesman Viktor Borodin said.
The new company, Polyus Gold, to be created in March 2006 and listed in Russia and abroad, will include Norilsk's Polyus gold subsidiary and its 20 percent stake in South Africa's Gold Fields, the world's fourth largest gold producer.
Holders of Norilsk shares or American Depositary Receipts at January 1, 2006 will be entitled to Polyus Gold shares, proportional to their shareholding in Norilsk.
On February 17 shareholders will vote on reducing Norilsk's charter capital to cancel the redeemed shares, along with 5.8 percent of Norilsk that the company bought back for $750 million earlier this year.
In May 2006 a Level 1 ADR programme will be established and holders of Norilsk's ADRs will receive Polyus Gold ADRs.
Polyus is snapping up the country's gold deposits and intends to triple output by 2010/2011 from 34 tonnes produced last year.
Norilsk's main shareholders are Chief Executive Mikhail Prokhorov and Vladimir Potanin, the president of parent company Interros, an industrial and banking group.
They jointly owned more than half of Norilsk's shares, but each is believed to have sold shares in the buyback.
Deposits, Rubles Or Coins? |
| The majority of the population neither has the time nor knowledge to look into the alternative ways of investing their savings – hence the continuing popularity of bank deposits. Alternative vehicles such as mutual funds and stocks have been compromised in the opinion of the Russian population (due to the well known MMM affair as well as
many others), whereas commercial banks have also lost a lot of trust during the 1998 crisis. |
Some paths for investment (such as utilizing financial instruments to make portfolio investments in real estate) are not well suited to small investors, and are still not very well developed. So, in the situation of discredited or underdeveloped alternatives, and also because of a certain inertia in the minds of the common people, the largest share of retail savings is currently accumulated by the regional banks of Sberbank of Russia.
Nevertheless, I think that the local subsidiaries
of foreign banks will also be well positioned to get a bigger share of that market in the future.
The conglomerate of banks that is called by a collective name of Sberbank is a monopoly-like structure that aims to preserve the semblance that deposits placed with it are backed by the state and by their “conservative” banking practice.
In fact, it is a rather magical structure: regional banks of the Savings Bank of Russian Federation do not seem to have any association with it, because they are 60.57 percent owned by the Central Bank of Russia, whereas other shareholders are not disclosed. The name of the bank in St. Petersburg is “Joint-stock Commercial Savings Bank of the Russian Federation - Northwest
Regional Bank”, and its major shareholder is the Central Bank of Russia.
So, regional banks have their own balance sheets and their own financial policies that have little connection to the Savings Bank of the Russian Federation.
In essence, what people in Russia are still calling Sberbank, is in reality a number of independent regional banks associated through a common majority shareholder (the Central Bank of Russia), and through a common word in their names - Sberbank.
According to the Russian civil code, shareholders cannot be held accountable
for the liabilities of their subsidiaries (beyond their investment in the equity capital), unless it is proven that shareholders have intentionally caused the losses of their subsidiaries.
I think that from the ethical standpoint, the behavior of Sberbank-like regional banks is incorrect, because, as a matter of fact, they present themselves as a single state bank, when in reality they are independent banks.
Playing on Sberbank’s reputation with the public, which does not understand the implications of the bank’s current organizational and legal structure, they attract the
savings of Russian people at low rates.
These low rates are explained by the psychological and historical perception of Sberbank as a huge state-owned bank that will not be allowed to fail - thus, the risk premium is non-existent.
However, this ethically contestable conduct gives regional Russian elites a unique chance to attract the vast resources of a misinformed population at practically no cost (below the rate of inflation).
This process is also helped by the active propaganda
of allegedly low inflation that is for some reason destined to fall in the future, as well as the idea that Sberbank-like banks are intrinsically safe.
For example, the web site of the “Joint-stock Commercial Savings Bank of the Russian Federation – Northwest Regional Bank” (note: no affiliation to “Joint-stock Commercial Savings Bank of the Russian Federation”) says that it has more than 150 years of history (officially, in fact, it dates from 1991, and was “reorganized” in 2001), which was mysteriously uninterrupted over the past 85 years.
So, in short, the answer to the question of why the population still holds money in
bank deposits is long-standing habit and mass lack of awareness.
Using the terminology of the web site of the Northwest Bank of Sberbank (which states that the “Savings bank was formally preserved in 1918”, although all savings in it – the history on the web site continues - were either lost due to inflation, or expropriated), in 83 years, after reorganization, we can see that the name of Sberbank was formally preserved.
As far the ruble is concerned, ideally such a calculation unit should not be used when accounting profits. Unfortunately for the country, the ruble is not backed by either a diversified economy, or by the country’s national wealth, nor by a well
thought-out long-term economic and monetary policy. If rubles were indeed backed by Russia’s wealth (including natural resources), the ruble could have been a rather popular international currency, like the CAD, AUD or NOK.
Now, take a ruble note and attentively look at it. Try to find where it says that the ruble is the official tender for all debts, private and public, on the territory of the Russian Federation; or that it is backed by Russian assets (Soviet money said that). If you can’t find that, then it is reasonable to conclude that ruble is merely a calculation unit, not even a bank note or a treasury note, but merely a “Card of the Bank of Russia”.
I have not heard of such a financial instrument. So, investments through alternative instruments are additionally impeded by the fact that Russia simply seems to lack a credible national currency that could be regarded as a store of value. Hence, no serious investors are taking big stakes in this game.
Exchange rate stability of the ruble in the medium-term is to a large extent (although not entirely) predicated by the extent to which it is backed with USD reserves of the Central Bank of Russia (I am not saying gold-currency reserves, because the share of U.S. dollars in the reserves still prevails, while the share of gold is minimal), and by fluctuations
of world commodity prices.
So, what are the Central Bank of Russia’s U.S. dollar reserves?
Since 1971, U.S. dollar denominated currency reserves are not convertible into gold. They are simply electronic dollar credits invested mainly in claims to the U.S. Government (U.S. Treasuries). So, the backing of the ruble strongly depends on U.S. fiscal and monetary policies.
How many people in Russia understand this link and the complex policies in the United States?
Or, how many people in Russia understand the underlying reasons for fluctuations of world commodity prices?
One can have an independent judgement on these issues only if one has a fundamental knowledge of economic and, desirably, certain humanitarian disciplines.
The opinion
among some economists in Russia and abroad is that investments in commodities (either directly into physical assets or indirectly through financial instruments), including gold and silver, depending on the investor’s level of conservatism and preferred leverage, are a viable alternative to investments in speculative financial paper or overvalued real estate.
Due to the underdeveloped state of Russia’s financial market and fragmented investment opportunities, the simplest method for citizens of the country to invest in liquid commodities is through the purchase of the so called investment coins (for example, zolotoy chervonets) that are VAT exempt.
In current global macroeconomic conditions, given the right strategy, investments into such assets can become a very rewarding alternative, while for common Russians this could be a very good way to secure long-term preservation of their family’s hard-earned capital.
Igor Yegorov is St. Petersburg office director at the U.S-Russia Center for Entrepreneurship (CFE)
Russian Central Bank could increase gold in reserves | ||||||
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MOSCOW, November 24 (RIA Novosti) - The Russian Central Bank could increase the share of gold in the national gold and currency reserves, a senior bank official said Thursday.
First Deputy Chairman of the Central Bank Alexei Ulyukayev said the bank would be purchasing gold "on all markets on which it is available," meaning both domestic and foreign markets.
He also said the bank has not been increasing the share of gold in the past few years and confirmed a $60-billion increase in gold and currency reserves by year's end.
On November 22, Russian President Vladimir Putin said he was
in favor of putting more precious metals in the Central Bank's gold and foreign currency reserves.
Russian Central Bank could increase gold in reserves | ||||||
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MOSCOW, November 24 (RIA Novosti) - The Russian Central Bank could increase the share of gold in the national gold and currency reserves, a senior bank official said Thursday.
First Deputy Chairman of the Central Bank Alexei Ulyukayev said the bank would be purchasing gold "on all markets on which it is available," meaning both domestic and foreign markets.
He also said the bank has not been increasing the share of gold in the past few years and confirmed a $60-billion increase in gold and currency reserves by year's end.
On November 22, Russian President Vladimir Putin said he was in favor of putting more precious metals in the Central Bank's gold and foreign currency reserves.
More flexible, efficient gold mining regulations
needed - Putin | ||||||
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MAGADAN, November 22 (RIA Novosti) - The state regulation of gold mining needs to be more flexible and efficient, Russian President Vladimir Putin said Tuesday during his visit to the remote Far
East port of Magadan.
"Another issue is to provide processing and refining companies with a full and balanced load," Putin said.
These companies' potential in terms of interregional cooperation and external economic relations must be increased, he said.
The economic and legal conditions for gold mining should provide a stimulus to reach the full potential of all types of mines.
This will also help guarantee stable employment in the sector and a higher standard of living in gold mining regions, the president said.
Gold production tax could be differentiated - minister | ||||||
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MAGADAN, November 22 (RIA Novosti) - Russian Finance Minister Alexei Kudrin said Tuesday that the gold production tax rate could be differentiated, but that he favored a sound administration system.
"The Finance Ministry generally backs this proposal. The task is to work out a good administration system," Kudrin told a conference in Magadan on gold production development.
Putin for greater share of precious metals in CBR reserves | ||||||
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MAGADAN, November 22 (RIA Novosti) Russian President Vladimir Putin, speaking on his visit to Russia's remote Far East port of Magadan, said he was in favor of putting more precious metals mined in the country in the Russian Central Bank's gold and foreign currency reserves.
The proposal was made by the head of a major gold mining company.
Ministry for allowing individuals to mine gold | ||||||
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MAGADAN, November 22 (RIA Novosti) - The Russian Natural Resources Ministry proposed Tuesday that private individuals should be allowed to mine gold, a right that only legal entities currently possess.
"We support the idea that private individuals should be able to mine gold, as this idea will legalize what they do anyway," Natural Resources Minister Yury Trutnev said.
By allowing private individuals to mine gold, the state will receive extra amounts of gold, Trutnev said.
The minister said gold prospecting had been better funded than other types of geological surveying, which was not fortuitous as it was not merely about "Russia's gold reserves but about the welfare of its northern regions, Magadan and Chukotka."
"Prospecting efforts pay back quickly in the case of large capital investment," the minister added.
Finance Minister Alexei Kudrin said his ministry did not object to extending gold mining rights to individuals. "Access [to gold production] for private individuals is not incorrect in principle," Kudrin said.
Russian Central Bank May Double Proportion of Gold Reserves
By Tim Wood
15 Nov 2005 at 08:43 AM EST
15 Nov 2005 at 08:43 AM EST
JOHANNESBURG (ResourceInvestor.com) -- Addressing delegates to the LBMA Precious Metals Conference on its last day, Russia's Head of External Reserves Management, Maria Guegina, said gold reserves as a proportion of all reserves may be doubled.
Noting that Russia presently has 5% of its national reserve portfolio invested in gold, Guegina said, “10% of gold in reserves would be appropriate”.
She gave no time frame for the change.
Guegina said the change was part of an ongoing effort to optimize the composition of assets and reserves managed by the bank. The bank is also encouraging the development of the Russian domestic gold market to be a fully functioning financial market akin to bonds and currencies.
Russia presently has 500 tonnes (17.64moz) of gold in reserves which it segregates as monetary gold, allocated gold and term deposits.
The envisaged doubling of Russia’s gold reserves as a proportion of all reserves at present values would consume all the country’s annual gold output for around three years. Russia produced nearly 182 tonnes of gold in 2004
and is expected to mine and sell 183 tonnes this year.
The actual tonnage to be added continues to grow as Russia aggressively builds its overall reserves thanks to a windfall profits from oil and gas, a good deal of which is now flowing directly to the state.
At recent oil prices Russia was raking in $500 million a day from its oil exports.
Guegina’s indication of Russian gold buying chimes with comments yesterday by Professor Kenneth Rogoff. He told delegates that he expects gold sales to be reversed in the medium term as central banks seek to offset rising risks and because of the need for diversification away
from the American dollar.
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Buying gold could also stem the threat of domestic inflation by keeping rubles out of the economy.
At the start of November Russia's gold and foreign currency reserves grossed a record $164.97 billion, up one-third from the first of January figure of $124.54 billion. By year-end the reserves are forecast to rise to around $180 billion.
Were the Russian Central Bank to move immediately to the 10% gold allocation, it would need to buy an additional 21.1 million ounces, or 646 tonnes. That is equivalent to over two years of South Africa’s total annual gold
output.
Central Bank may cut refinancing rate | ||||||
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MOSCOW, November 24 (RIA Novosti) - Russia's Central Bank may consider cutting the refinancing rate, the bank's first deputy chairman said Thursday.
Alexei Ulyukayev said inflation would hit 10% in January-November.
"For us, these dynamics are a good reason to consider a lower refinancing rate," he said, declining to elaborate on how substantial the reduction would be.
Earlier, Ulyukayev said inflation for the first three weeks of November had reached 0.6%.
Ministry for allowing individuals to mine gold | ||||||
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MAGADAN, November 22 (RIA Novosti) - The Russian Natural Resources Ministry proposed Tuesday that private individuals should be allowed to mine gold, a right that only legal entities currently possess.
"We support the idea that private individuals should be able to mine gold, as this idea will legalize what they do anyway," Natural Resources Minister Yury Trutnev said.
By allowing private individuals to mine gold, the state will receive extra amounts of gold, Trutnev said.
The minister said gold prospecting had been better funded than other types of geological surveying, which was not fortuitous as it was not merely about "Russia's gold reserves but about the welfare of its northern regions, Magadan and Chukotka."
"Prospecting efforts pay back quickly in the case of large capital investment," the minister added.
Finance Minister Alexei Kudrin said his ministry did not object to extending gold mining rights to individuals. "Access [to gold production] for private
individuals is not incorrect in principle," Kudrin said.
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