The case for gold in Russia
Russia has long had a close connection with gold, although one that has varied over many generations.
For example, the Gokhran of Russia (The State Repository of Precious Metals and Gemstones of the Russian Federation), now part of the Ministry of Finance of the Russian Federation, can trace its origins back to 1719, when Peter the Great, Emperor of Russia, established the country’s first State Treasury. More recently, Russia has emerged as a major gold mining nation, while its central bank has built very substantial gold reserves of approximately 2,300 tonnes (t), representing over 20% of the total value of the country’s reserve assets.
In the wake of the pandemic
Gold is not only a useful long-term strategic component for portfolios, but one that is increasingly relevant in the current environment (see 2020 Gold Outlook).
The COVID-19 pandemic has had a substantial impact on Russia’s economy, exacerbated by a sharp fall in oil prices and heightened global risk aversion in capital markets, resulting in reduced fiscal revenues and a weakened ruble. But fiscal and monetary packages have softened the economic blow and the currency valuation. If uncertainty diminishes, household consumption could lead to further recovery. However, the ruble is likely to remain volatile, often amplified by geopolitical risks and this will remain a major concern for many domestic investors.
Developing private financial literacy and expanding investment capacity
Russia’s national development goals2 have targeted greater financial literacy among the country’s population, encouraging greater participation in a developing investment market to bolster savings and private pension provisions. This is still a relatively underdeveloped market, with investors often concerned with the limited choices and return opportunities available to them. We believe that gold, already understood by many Russians to be a safe store of value and a risk mitigation asset, can support these efforts gold is made more accessible via a broader range of trusted products and platforms.
The role of gold
Consumers in Russia have long recognised the benefits of gold as an asset and savings vehicle and this remains true today (see Focus 1). This suggests there are major opportunities in opening the gold market to satisfy nascent domestic private investor demand. However, institutional investors may also benefit from allocating a proportion of their holdings to gold, given its proven ability to contribute to optimal portfolio performance and the expanding list of challenges around asset management and portfolio construction.3 In both instances, market development may require regulatory changes and the introduction of a wider range of gold-backed investment products, but there is already strong momentum behind the potential expansion of the Russian gold market, with potential benefits for a wide range of investors.