An exclusive tour of Russia's gold reserve

Section:

10:05a ICT Thursday, March 22, 2018

Dear Friend of GATA and Gold:

Brandon White of bullion dealer BMG Group in Ontario calls attention to a recent report in the major Russian newspaper Komsomolskaya Pravda by two journalists who were given an exclusive tour of the vault containing Russia's gold reserve.

White has provided a translation that may be better than an ordinary internet translation, and it is appended. But the translation is interrupted by captions for the photographs accompanying the story, which you'll want to see and which can't be reproduced here. The article, in Russia, of course, and the photos are posted together at the Komsomolskaya Pravda internet site here:

https://www.kp.ru/putevoditel/lichnye-finansy/zolotoj-zapas-rossii/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

... Dispatch continues below ...



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This Is How Our Nest Egg Gold Is Stored for a Rainy Day

The correspondents of KP, Evgeny Belyakov and Vladimir Velengurin, are the first journalists in the country to get to visit the main gold vaults of the Russian central bank.

Text by Eugene Belyakov
Photos by Vladimir Velengurin
Komsomolskaya Pravda, Moscow
January 2018

https://www.kp.ru/putevoditel/lichnye-finansy/zolotoj-zapas-rossii/

The sensations were strange. I was in the same room with hundreds of tons of gold. In Money it is almost a trillion rubles. To accumulate such an amount, the average sportsman would have to work several million years. My legs shake only from the realization of one highly relevant fact: this kind of wealth has led to innumerable wars and fallen empires.

A ton of gold-per square meter. "Well, do you think they would notice if we stole just one bar?" asked my colleague and photojournalist Vladimir Velengurinym upon arrival at the vault. Admission to the central bank's vault is strictly limited. The central bank made an exception for KP.

We imagined the storage system differently. I imagined Scrooge McDuck's storage, where you can dive. Well, or at least juggle coins and ingots. Volodya imagined it as a mountain of ingots, exposed and stacked in giant pyramids for picturesque effect. Everything turned out to be much more banal. Lattice containers, tampered and folded one on another, stand equal rows along the whole premise. The scale is impressive. The appearance -- not very.

Now the volume of gold in the international reserves of the central bank exceeds 1,800 tons. Russia is the sixth-place gold holder on the world index. Ten years ago the share of gold in our international reserves was 3 percent. But in recent years the central bank has started to increase its reserves -- now the share has risen to 17 percent.

The gold reserve is a security cushion for the country. In case of crisis or shortage of foreign exchange reserves, gold can always be sold or deposited. It is still in demand in world markets, though earlier its value in this regard was much higher.
Gold played the role of world currency. It was a world trade settlement tool. In addition, the amount of gold in the country's reserves determined the value of the national currency. Each banknote was initially provided with some quantity of this metal. That is, the country could print more money only if the reserves added more gold. This kept the currency from inflating. Until 1944 all countries kept their reserves only in gold.

Now the value of gold as a nation’s reserve is less than it used to be. The U.S. dollar plays a major role in global trade settlement. Most countries hold most of their international reserves in dollars. Although there are nuances: In developed countries the share of gold in reserves is 60-70 percent. But they do not have as much savings as in developing countries.

However, gold is still used as a protective tool. In crisis it is possible to sell it for money.

Dictionary time: "Monetary gold" is the central bank’s and the Russian government’s standard for gold bars and coins and must be made with a metal purity of not less than 995/1000.

International reserves have the same standard for gold as a currency reserve. The country's money is now stored not only in precious metals and world currencies, but also in other financial instruments. For example, the structure of Russian reserve assets have a reserve position in the International Monetary Fund using Special Drawing Rights (SDR). In fact, in Russian, the SDR literally translates as "pseudo-value." The SDR was invented by the IMF as a universal tender. The IMF’s SDRs are not widely disseminated as they remain used only between the IMF member central banks.

In theory, the structure of reserves should take into account the structure of export and import operations of the country.

... History of Russian gold stocks

-- The gold reserve of the Empire in the beginning of 1914 was 1,312 tons. Back then Russia was among the three largest gold squirrels, along with the United States and France.

-- 10 years after the revolution the gold reserve of the Soviet Union depleted to 150 tons. This was the result of the First World War and spending of the new Soviet power.

-- After Joseph Stalin came to power, the gold reserve of the Soviet Union began to grow rapidly. By 1941 it reached 2,800 tons. (This is the historical maximum.)

-- In 1991 the legacy of the Union of New Russia was only 290 tons of gold. The accumulation had to start almost from scratch.

It's interesting how the gold bars are poured.

KP photojournalist Vladimir Velengurin visited the Novosibirsk refinery, where the nation's gold is refined. Novosibirsk is in Siberia and is farther from any ocean than all but one of the world’s cities.

One bar is worth 30 million rubles

I never thought that gold was so heavy. The bar is small but it is not easy to raise it. He pulls 12-13 kilograms. So you can safely swing the biceps. I'm sure some rich guys do. Why else would they have so much money?

Ingots are neatly stacked in lattice containers (20 pieces each). Each of them sealed.

In whose hands is all the gold of the world?

It is difficult to estimate the amount of gold available on the planet. The approximate calculation is 190,000. More than half of that is in private ownership of the public (mostly in the form of jewelry). Still, about 33,500 tons are official reserves in the vaults of the countries of the world. The rest is used for investment purposes by large companies and foundations or is applied in dentistry, electronics, and other industries.

The sign of "evil" means "gold refined." On the ingot is a trademark of the manufacturer, where you can find the place of production of a particular ingot, year of manufacture, sample, and weight of the ingot.

Ingots have a sample purity from 99.95 to 99.995. It means that the gold content there is from 99.95 to 99.995 percent respectively. The remainder is impurities.

Each ingot has a document of its quality. In addition to gold in the ingot there are also impurities of other metals. For example, iron, platinum, palladium, rhodium, lead, silver, copper, nickel, and others. But that part of the bar tends towards zero.

The market value of gold is constantly changing. The price is quoted on the stock exchange. On average at the time of publication one standard bar costs 30 million rubles. The whole box weighs about 250 kilogram, worth 600 million rubles.

The biggest win in the history of Russian lotteries is 506 million rubles. (In the middle of November this year the winner of the Russian lottery became a resident of the Voronezh region.)

A question to consider is this: Is gold too expensive?

There is a popular opinion that gold is always expensive. This is proclaimed by many high-profile analysts. If you look at the price dynamics, it’s nothing like that. In some periods gold experiences long-term growth, and in other periods there is stagnation for decades. Therefore, it is impossible to predict how gold will behave in the coming years. It would be possible to interview 10 analysts on this topic, but probably only half of them would guess correctly.

For example, in 2011-2012 the demand for gold was at its climax. The price per troy ounce (31.1 grams) reached $1,900 and experts competed among themselves predicting a higher price. The most notable seems to be the chief executive officer of Euro Pacific Capital, Peter Schiff. He predicted that an ounce of the metal would soon rise to $5,000 and added that "that won’t be the limit." He advised all private investors to buy gold.

"Whoever does this will get a huge profit," Schiff said. Those who followed his advice suffered losses. So we will not give predictions.

A financial adviser once said to me: "You need to buy gold only in case of atomic warfare. Then it can be changed to bread. If you believe in a quick apocalypse, buy it. … Or for its beauty."

There are several ways to invest your money in gold. Almost all of them involve additional commissions, overpayments, and inconveniences. Whether it is worth the cost is for you to decide.

Oh, hard work -- hauling billions every day!

The team's work is heavy. Carrying 13 kilograms of ingots is not easy. Plus, they have to follow a lot of instructions. Each action of the employee is strictly regulated.

Workers treat ingots very carefully. They are not allowed to damage the ingots. The gold in the vault should be in perfect condition.

The table for weighing is covered in green cloth, as on a billiard table. This protects the metal from scratches and other damage.

... Epilogue ...

Storage workers call gold simply "metal" and all together (with banknotes and coins) -- "values." And after one hour in the vault you stop perceiving gold as something expensive and exotic. Your legs stop trembling and you lose the desire to possess it. Metal is metal. It sparkles but does not attract. Probably in a place similar to this arose the saying, "Happiness is not born in money." For this reason it is a pity that access to the vault is strictly limited. We should encourage excursions to the vault for all our oligarchs.

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