Russian citizens are aggressively buying gold in a desperate effort to protect their savings, as they face the financial consequences of Vladimir Putin’s war against Ukraine, and Moscow is encouraging the purchases in an effort to limit a run on banks.
The nation’s central bank, the Bank of Russia, announced on March 15 it would halt its own buying of gold from commercial banks to ensure enough supply for the public. “In order to create conditions to meet the demand of the population, the Bank of Russia suspends the purchase of gold from credit institutions,” the bank said in a press release, adding that demand for “physical gold bullion has increased, due, in particular, to the abolition of VAT (value-added tax) on these transactions.”
While eliminating Russia’s 20 percent value-added tax on purchases of precious metals makes gold more affordable for citizens, the true driver of demand is anxiety about financial consequences of the war, the collapse in the value of the Russian ruble, and Moscow’s new restrictions on foreign currency bank withdrawals. For a six-month period, Russians now may withdraw no more than $10,000 in foreign currency from banks. The state-owned Sberbank has reported a quadrupling in demand for gold and palladium and said more of its branches will begin selling gold to “help people protect their savings.”
The Russian ruble has tumbled since Vladimir Putin ordered his military attack on Ukraine as the United States has led a global effort to impose severe economic sanctions on Russia. In an effort to preserve its currency reserves, Russia has not only limited foreign currency withdrawals, but also restricted overseas transfers and banned banks from selling foreign currency to those who do not have a foreign exchange account. Russia has also raised interest rates to 20 percent to prop up the ruble.