How Russia is using gold in wartime

This research, commissioned by the Sanctions Directorate in the Foreign, Commonwealth and Development Office, examines how Russia is using gold, in particular to evade sanctions and generate revenues, since the full-scale invasion of Ukraine.

We provide detail on the development of Russia’s gold policy; how its how its gold companies and banks have responded to Western pressure and sanctions; how its gold producers are faring in terms of production and access to mining equipment; and how Russia is seeking to generate revenues from and trade with gold.

What did we find?

Gold has become a strategic resource for the Russian state since the full-scale invasion of Ukraine, and the authors highlight the following findings:

• Gold has a bearing on Russia’s revenue generation capacity and its monetary policy; it is central to Russia’s international campaign for de-dollarisation; and it plays an important part in Russia’s wartime trade relations, notably as a means of payment.
• Over the last decade, Russia became the world’s most important sovereign buyer of gold. Russia’s official reserves are now the fifth largest in the world. In addition, Russia also holds an undisclosed – and possibly sizeable – amount of gold and precious stones in a second store known as the State Fund for Precious Metals and Stones (Gosfund). Since the invasion of Ukraine, Russia has regularly added gold to the Gosfund, which can be used at the discretion of the Executive.
• Prior to the invasion of Ukraine, Russia transferred the entire holdings of the National Welfare Fund into yuan (60%) and gold (40%). In hindsight, this was an indication that Russia was preparing for increased Western economic pressure. During the war, Russia has been using these funds to support the budget.
• Russia intends to become the world’s number one producer of gold but there are signs that domestic production is flatlining. However, Russian interests also hold sizeable stakes in the gold industries of several countries of the former Soviet Union and Africa.
• Gold is Russia’s most important revenue-generating metal, but it is not, and will not become, a substitute for oil exports. Although the relative importance of gold has risen with the decline in Russia’s gas exports, Russia’s oil industry will remain its primary source of natural resource revenues.
• Western economic pressure has had a significant impact on Russia’s gold mining industry. Western investors have almost entirely left the sector and the ownership structures of some of the largest companies have changed. There has been less change among Russia’s gold refineries, where state ownership is more common.
• Russia’s mining industries were significantly dependent on Western equipment and servicing. Gold producers are scrambling to rebuild their supply chains, with increased reliance on China. The future productivity of the industry depends on whether its companies can achieve this. Its potential to reduce its import dependence is unconvincing.

What can be done?

• The Russian state is evidently encouraging barter and exchange-in-kind, and otherwise resorting to gold to secure hard currency and foreign goods, but the scale, terms and participants in these activities is unknown. Further investigation is required to shed light on the scale of Russia’s international exchange-in-kind activities.
• In Russia’s gold sector, a number of changes took place in terms of ownership and shareholders of the country’s largest gold mining companies in response to sanctions pressure. There is also evidence that investment in the sector is now slowing. Further work on how Russian actors in the gold sector are responding to Western sanctions and tighter supply chains, and where they seek to sell their gold, will be essential to determine how the Russian gold sector is changing.
• Russia is actively seeking to extend its foreign mining interests, especially in the former Soviet Union and Africa. Further work could focus on what Russia gains from its overseas gold assets.
• There are signs that Russia’s miners have been heavily dependent on Western suppliers, and that neither domestic nor non-Western producers can fully make up the shortfall left by their departure. A deeper dive into topic could explore the extent to which Russia is accessing Western mining equipment

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