Russians Prefer to Invest in Gold
During 2022-2023, Russian citizens acquired approximately 125 tons of gold bars for private ownership. Interestingly, this figure was only around five tons per year just two years earlier.
Experts note that the massive surge in interest in the noble metal is based on three main factors: the desire to protect ruble capital from inflation, the trend toward de-dollarization of the domestic financial market, and a series of laws passed by the country’s authorities in the past couple of years. Our material explores what awaits the gold investment market in 2024 and whether inflationary expectations can continue to sustain such enthusiasm in Russia.
The “gold rush” began in the spring of 2022 along with the elimination of the value-added tax (VAT) on the purchase of gold bars for individuals. Previously, a 20% tax on the cost was required for this transaction, and it was not refunded upon the resale of the ingot. The initiative aimed to support the investment climate within the country and to push the dollar and the euro, the main instruments of long-term investment, out of the market.
The authorities considered this initiative successful, and in the summer of the same year, the head of state signed a regulation canceling the personal income tax (PIT) on the purchase of gold bars by individuals in Russia in 2022-2023. The icing on the cake was a law passed at the end of the same 2022. According to the document, in addition to banks, Goznak and refineries responsible for gold production gained the right to sell gold. The document was immediately approved in the second and third readings, indicating the market’s readiness for new achievements.
Now the trend of buying gold continues, albeit without the former frenzy. According to the National Rating Agency’s expectations, the total volume of gold bar purchases for 2023 should be at least 40-50 tons.
“In 2023, Russia demonstrated a significant growth in interest in gold as an investment asset, reflecting the stability and adaptability of its economy. The development of the ‘gold market’ and increased competition among sellers have improved the accessibility and diversity of products, while sanctions have stimulated the reorientation of capital to domestic assets. These data emphasize the ability of the Russian economy and its management structures to adapt to complex external conditions, ensuring stability and confidence in the future,” said Maxim Ilygov, Director of Development at Only Bank.
Field Reports
Over the past 12 months, gold has risen by more than 10%: at the beginning of the New Year, its price reached $2,070 per ounce. Despite rising prices, banks report an increase in retail gold bar sales. For example, in Promsvyazbank, they sold 7 tons in 2023 – almost twice as much as the previous year. Sberbank sold 18 tons in a year, and VTB clients purchased 23 tons of gold by early December 2023.
By the way, in the same bank in 2022, a record was set – 33 tons were sold in a year, which is explained by the launch of the ingot buyback function. With this feature, a client can fix profits by returning gold previously purchased from the bank at an advantageous price. The main growth points are Moscow and St. Petersburg, where most wealthy people reside, who can afford such investments.
“One of the means of withdrawing part of the funds from current turnover is gold bars. Of course, when the local currency is stable and there are no signs of a sharp change in the exchange rate and other macroeconomic risks, there are no special reasons to switch to gold bars or other assets with comparable liquidity. However, for risk hedging, it makes sense to withdraw capital in the form of highly liquid assets with various terms of reverse transformation into money or other highly liquid assets,” says Andrey Girinsky, Associate Professor of the Faculty of Economics at RUDN.
In 2023, gold prices have risen by more than 10%
At the same time, bankers note the growing popularity of metal accounts (OMS – depersonalized metal account), where monetary funds are indexed based on the market value of precious metals. In the aforementioned Promsvyazbank and VTB, the share of “gold” metal accounts for the past year was 70% and 50%, respectively (of the total volume of such accounts).
This has also been facilitated by the recent trend of funds flowing from regular bank deposits to metal ones: against the backdrop of the growth of the money supply in rubles, some clients seek to diversify investments into more conservative instruments, albeit with a lower return. For example, with 16-17% per annum on bank deposits for the population, the rise in the cost of gold in 2023 amounted to slightly more than half of this amount.
Moreover, the popularity of OMS is associated with convenience: with non-cash investment management, depositors do not have to spend money on storing and transporting ingots.
Growth Points
Geopolitical risks played a significant role in the growth of gold bar sales. The practice of capital outflows from Russia to “unfriendly” countries forced the owners to relocate their assets to more reliable ones.
Domestic legislators came to the aid of economic repatriates by reducing the tax burden. Thus, personal income tax (PIT) was exempted from the income arising from non-residents’ acquisition of shares or stakes in Russian companies. A real find for capitals that fell under sectoral Western sanctions was the use of mutual investment funds (MIFs), which allow investing in almost any assets, including gold. Most major Russian banks, such as VTB, Sberbank, Raiffeisenbank, Tinkoff, or RSX, currently offer this option.
Against the backdrop of increasing interest in investing in precious metals, shares of gold mining companies also rose throughout 2023. Last year, the value of Polymetal’s shares soared by almost 24%, and the shares of Russia’s largest gold producer, Polyus Gold, increased from 7,800 to 12,000 rubles per share in the first nine months of 2023.
The advantage of such investments is double profit: the stable growth of gold prices serves as additional support for the quotes of securities for its producers. In general, the total volume of transactions by individuals regarding “gold” assets on the Moscow Exchange for the past year increased more than two and a half times, almost 74 tons compared to 2022.
“In the fourth quarter of 2023, world gold prices set historical highs against the backdrop of the conflict in the Middle East. Global central banks are also increasing their gold purchases following the precedent of freezing Russian gold and foreign exchange reserves because physical metal is stored inside the country,” argues Vladimir Chernov, an analyst from Freedom Finance Global.
Forecast for 2024
In the coming year, the price of gold will only rise, according to most experts, and there are several reasons for this: against the backdrop of geopolitical turbulence, gold remains the main reserve for monetary authorities worldwide and a source of investment stability for individuals.
The existence of such a quasi-currency helps companies hedge risks, and the growing demand for jewelry helps maintain the liquidity of this asset in the consumer market. According to forecasts, by the end of the year, the price of gold will rise by another 10-15%, making investing in its purchase a reliable way to protect capital from inflation, and with favorable conditions, one can even expect a profit.
At the same time, the further easing of monetary policy in the US in the coming year heralds an increase in the price of this metal, following the examples of the previous cycles in 2000, 2007, and 2019: then gold instantly rose by 30-40%. For speculative purchases, the window of investment opportunities will open when interest rates are lowered by the European Central Bank and the Federal Reserve of the United States.
On the other hand, the return of personal income tax (PIT) on the purchase of gold bars can neutralize the profit from the purchase, which should also be taken into account when entering this asset. However, volatility in currency and commodity markets continues to make strategic investments in “gold” assets an extremely attractive tool for both future investments and the preservation of already earned funds.
By Alexey Zotov