Image courtesy of Bullion Trading LLC
Some investors want Russian gold off their books but it’s not that easy to remove.
A de facto ban on Russian bullion minted after Moscow’s invasion of
Ukraine — instigated by the London market in early March — does not
apply to hundreds of tonnes of gold that has been sitting in commercial
vaults since before the conflict started.
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Fund managers looking to sell the metal to avoid the deepening
reputational risk of holding assets linked to Russia in their portfolios
could trigger a costly scramble to replace it with non-Russian gold,
according to bankers and investors.
“This would only serve to damage investors. It doesn’t damage the
(Russian) regime,” said Christopher Mellor at Invesco, whose fund has
around 265 tonnes of gold, 35 tonnes of it produced in Russia with a
market value of around $2 billion.
The dilemma facing investors reflects Russia’s heft in the global
bullion trade and its hub, the London market, where gold worth around
$50 billion changes hands daily in private deals.
A rapid selloff of gold from Russia — a top three supplier — would
potentially disrupt that trade by undermining the principle that all
bars in the London trading system are interchangeable regardless of
their origin, according to three senior bankers at major gold trading
To buttress the market, two of the bankers told Reuters they contacted clients and rival banks to tell them they would not dump Russian bullion minted before the war.
The bankers said they advised their customers and other traders that
they should do the same. They declined to be named due to the
confidential nature of the conversations.
“I made an effort to call clients. I told them, if you demand that
your Russian metal is swapped out, you’ll create a problem for yourself.
You don’t want to create a scramble,” one said.
He said his phone lit up with calls after the London Bullion Market
Association (LBMA), a trade body that sets market standards, removed all
Russian refineries from its accredited list on March 7, meaning their
newly minted bars could no longer trade in London or on the COMEX
exchange in New York, the biggest gold futures trading venue.
“There was utter confusion. Funds were saying they didn’t want any Russian bars in their holdings,” the banker said.
The Bank of England
Russia invaded Ukraine on Feb. 24 in what it has called a “special
military operation” aimed at demilitarising Ukraine and rooting out
dangerous nationalists. Kyiv and the West call this a baseless pretext
for an aggressive land grab.
The Bank of England, which operates Britain’s largest gold vault,
said it considered Russian gold bars made before the conflict in Ukraine
eligible to trade because they are still on the LBMA’s accredited list,
known as the Good Delivery List.
“As far as the Bank of England is concerned, any Russian refined gold
produced after 8th March is not London Good Delivery. Any bars produced
before that remain acceptable, and we told all our customers this was
the case. That’s just a point of fact, so we don’t have any comment on
this,” the Bank of England said in an emailed statement.
To hammer home the point that pre-invasion Russian gold was meant to
be treated the same as gold from other places, some banks told clients
for whom they stored gold that they would have to pay extra to offload
Russian bullion because it would breach their existing contracts, the
two bankers, a third banker and two gold-owning investment funds said.
The bankers’ conversations with clients and rivals, which have not
previously been reported, highlight the role played by a handful of
players in the London gold market, where trades happen in bilateral
Twelve banks dominate trading in the London gold market and four of
them — JPMorgan, HSBC, ICBC Standard Bank and UBS — operate vaults.
Anyone trading bullion relies on their services, directly or indirectly,
to settle trades.
JPMorgan, HSBC, ICBC Standard and UBS declined to comment when asked
about how they handled investor requests to sell their holdings of
The LBMA, which is made up of gold refiners, traders and banks, is
not a regulator, and relies on market participants to uphold its rules.
The large quantity of Russian gold in the London market and Russia’s
rapidly emerging pariah status in the wake of the Ukraine invasion,
however, put the banks in a difficult spot, according to lawyers and
“I think you’re seeing the banking community trying to navigate a
very complex situation,” said Peter Hahn, emeritus professor at the
London Institute of Banking & Finance.
“The Financial Conduct Authority (FCA) should question the practice
to understand whether the actions were, generally, for the benefit of
market participants … and whether the practice was transparent to market
The FCA is the British regulator responsible for overseeing banks
where they trade financial products or instruments in the London gold
market. It declined to comment.
A spokesman for the LBMA said the association was “anecdotally” aware
that some owners and traders of Russian gold have wanted to swap it out
or not to deal with Russian gold in the future.
Asked what the LBMA thought of this, the spokesman said that it
“maintains a neutral stance provided the efficient operation of the
market is unaffected.”
The spokesman declined to comment on bankers’ efforts to prevent a
sell-off of Russian gold. He said that the LBMA “does not distinguish
between different types of good delivery gold”.
The bankers’ actions appear to have worked.
Good delivery gold bars minted in Russia before the invasion have not
traded at a discount to the rest of the market, according to traders.
Larger investors — including some exchange traded funds (ETFs) with
Russian gold worth more than $1 billion — do not appear to have sold up.
“Our ETFs are not able to get all Russian metals off their books at short notice,” said a spokesperson for Zürcher Kantonalbank.
“The potential losses would not be compatible with our fiduciary duty
to our clients and its sale is currently not possible due to the
Zürcher Kantonalbank’s current ETF stock of about 160 tonnes of gold
comes mainly from Swiss refineries and the share of Russian gold is
negligible, according to the spokesperson.
A widespread and rapid clearout of Russian gold from investor
portfolios could push its price down by anywhere from $1-$40 an ounce
compared to non-Russian gold, people in the industry said.
At least $12 billion worth of Russian gold is stored in vaults in London, New York and Zurich, according to a Reuters
analysis of data from 11 large investment funds. The total amount is
likely significantly larger but there are no publicly available figures
to quantify it.
If Russian gold traded at a discount of $5 an ounce, the cost to
funds of replacing $12 billion worth of metal would be around $34
A Reuters analysis of investment data shows that the share
of Russian gold in eight large ETFs actually rose to 7% on average in
mid-July from 6.5% in mid-March.
Some gold market participants have pushed ahead with selling their
Russian holdings but they have tended to have less to offload.
Britain’s Royal Mint, for example, said it had Russian bars worth
around $40 million in its ETF and got rid of them by mid-March.
Others are trying to reduce their Russian holdings over time, asking
the banks which store their gold to gradually cut their allocation or
refusing to accept Russian gold bars in new deliveries.
Asset manager Abrdn said it had asked its bank to reduce its Russian
holdings. In mid-March, Russian gold accounted for 10% of the roughly 45
tonnes held in its Aberdeen Standard ETF. By mid-July, that proportion
had fallen to 9.8%.
Those seeking a faster exit, meanwhile, have been left in a bind.
“Everyone has the same problem. Everyone wants to solve it, no one knows how,” said a source at a major investment fund.
(By Peter Hobson and Elisa Martinuzzi; Editing by Veronica Brown and Carmel Crimmins)