Russia, China, India Unveil New Gold Trading Network

Tyler Durden's picture

Submitted by Ronan Manly, BullionStar.com

One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.

In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.

Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.

Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.

Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.

Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.

BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.

At the time Shvetsov, as reported by TASS in Russian, and translated here, said:

“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”

Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.

The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.

Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia

National Security and Financial Terrorism

At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.

And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.

Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:

“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”

As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.

1800 Tonnes and Counting

From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.

Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have  embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.

According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.

With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.

The Bank of Russia now has 1801 tonnes of gold in its official reserves

A threat to the London Gold Market

The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.

Currently the international gold price is established (discovered) by a combination of the London Over-the-Counter (OTC) gold market trading and US-centric COMEX gold futures exchange.

However, ‘gold’ trading in London and on COMEX is really trading of  very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.

While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.

Conclusion

It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.

The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.

When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.

*  *  *

This article originally appeared on the BullionStar.com website under the same title "Russia, China and BRICS: A New Gold Trading Network".

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Disgruntled Goat's picture

Do it. Fuck the Comex and LBMA. 

Schmuck Raker's picture

"...the world’s two largest importers and consumers of physical gold, namely, China and Russia."

Ehm, what happened to India? I know they've tried to crack down on imports, but have they actually been that successful?

East Indian's picture

No. India is still no.2 consumer and importer

unsafe-space-time's picture

Thats good news for bitcoin

Bay of Pigs's picture

I’m certain this story will never be reported in the US press.

Yog Soggoth's picture

Israel has a lot of gold for a small area that is not known for big nuggets. I read their news for laughs sometimes.

BitchesBetterRecognize's picture

Gold, Silver & Cryptos will prevail  

BitchesBetterRecognize's picture

Indeed Gold and Silver will- but when I refer to Cryptos - I'm not refering to BTC, ETH, etc - I'm referring to the technology/platforms/infrastructure being created by them-which ultimately will serve as a vehicle for the tangible ones. 

Manipuflation's picture

Does it mean that we can finally get rid of Britian's "London FIX" and establish a market?

Hkan's picture

Think so. I mean what can they do gold surging at BRICS market.

Interesting is future gold plan....its not gonno stop here. 

Coordinated gold backed currency (yuan/ruble) killing US world status currency. US going down the drain as $ gets killed or panic back $ to gold....again to survive.

Buckle up....bumpy ride...

Manipuflation's picture

I don't like "gold backed" currency.  I want gold currency.  In fact, I hate the currency laws.  I want gold money.

Yog Soggoth's picture

Most people did not have the money or foresight to buy a 1965 Shelby Daytona Cobra Coupe, but they might have been able to buy a L88 engine if they had an old Hemmings. Those relic cars were being crushed and sold to china for beer money. By establish a market, well, some already have.

Hkan's picture

Divorce physical gold from paper....crap.

Physical gold free to go....

Chupacabra-322's picture

Here's a good analysis revealing the real catalyst for Trump Armageddon: 

"The true motive behind the wars in the Middle East is to maintain the US dollar as Reserve Currency and the Petrodollar as the unit of value for a barrel of oil. thus financing the US economy and its Military enforcement machine.

Russia and China have been dumping their US Treasury Bonds slowly and now trade between themselves in Gold, Yuan and rubles.

They have formed a new Financial system with the AIIB (Asian investment and Infrastructure Bank). They have formed a new Bank Clearing System, separate from SWIFT. They have their own credit card systems.

China is building the NEW SILK ROADS and sea arteries to connect the countries of ASIA to Europe. Trade along these routes will be in local currencies, bypassing the dollar.

The Silk Roads by-pass the US Navy’s control of the sea route choke points and make their carrier fleets largely redundant as enforcement tools..

For the Washington war machine, Syria is but a stop along the road to Iran, then up into Central Asia to cut and control the Silk Road and impose the US dollar toll charge.

The New Silk Roads spell the end of the US dollar as the dominant currency and the end of the US military and Financial hegemon.

Thus Syria is a major pivot point in World History and will be a war to the end. Empires die slowly and usually decay from within, but this may not be the case with the neocon psychopaths reluctant to concede power.

There are other US allies with interests in subduing Syria; Saudi and Qatar to build their gas pipeline to the Meditterean and onto the European Market, this undermines Russian near monopoly of supply and will undermine their already fragile economy.

Turkey with its grab for the corridor to the oilfields of Mosul and subjugation of its rebellious Kurds.

Israel and its Oded Yinon plan to break-up Syria and grab land, also to cut the Shia Crescent connecting Iran to Hezbollah in Lebanon.

European countries who are reliant on Russian gas energy supplies and wish to have another supply source from the Gulf States.

So there are many countries ready to feed on the carcass of Syria, if it is defeated."

BandGap's picture

This is surreal. Again, Armageddon is 60 miles from the Syrian Golan Heights. End times shit.

So if you have paper gold, convert it to currency (driving the price of gold down) and then into real gold. Quickly.

38BWD22's picture

 

 

Excellent analysis.

Jack Oliver's picture

Qatar has already jumped EAST - Russia's sale of 18% of Rosneft to Qatar proves it .

Qatar may well get their 'pipeline' through Syria - it won't be achieved by force though - It will be permitted as a legitimate business deal between Syria - Russia - Qatar !

Putin is buying 'leverage' in the ME .

Qatar - Turkey - Iraq - Iran - have developed a 'silent' alliance - enabled by Russia !!

KSA will be next !!

Posa's picture

The Russia -KSA is particularly interesting... together they can form their own hydrocarbon cartel... this is a great incentive to turn the KSA away from te US- Israel axis, which is a dead end.

MrSteve's picture

Godless commies in Russia drove KSA to the USA and Great Britain with much help from western oil interests. Soviets and now Russians fighting Muslims in their southlands might keep KSA away from Moscow.

Davidduke2000's picture

King Salman bowed to president Putin when he visited Russia, while all world leaders bow to king salman including trump.

Chupacabra-322's picture

@ Posa,

Let’s explore the Geopolitical ramifications a little deeper shall we?

The Imperial model of American diplomacy has collapsed and they are helpless in the face of Russian diplomacy that offers a fair deal.

Rather than reassess their model, the empire has decided on a policy of plunging into chaos any state that does not bend over.

Syria Libya and Iraq are victims of this model. If they seem to be rallying under the Russian banner because the Russians offer stability and their Chinese partners, prosperity.

What does the empire have to offer?

Threats, war, oppression, debt, and corrupt treasonous puppet leaders.
Who is going to win this race?

The only way America can save itself is to purge the deep state traitors who put the empire before the Republic. They will lose both and gain nothing.
If you want to move the price of oil by $10 increments - Russia is the natural ally - and proven to be a master of strategy/ equipment / technology/ tactics / commitment you can count on / and especially Diplomacy.

Each $10 PER Bbl- is $33 Billion per annum to SA. Not pocket change - when the largest "future" world supplier is ....Russia and can make it stick.
They also have Iran / Iraq / Turkey / Syria / Hezbollah as partners plus tangentially the Taliban / Pakistan.

And, a 10 million man military when the game goes full tilt and they want it -- China!

The Washington Cabal has no credibility with its "word" internationally nor with its Citizens - who hate them - republicans & Democrats alike
No one but fools see otherwise.

LV was inept- no videos of the garage / elevators / hallway / lobby of the PERP!!!!!

This event is representative of their credibility worldwide.

We are witnessing the CLOWN car go to a Clown bus and now to a Clown Train.

Trump is a minor figure in this 70 year process which never changed
Good luck to all American Citizens - you didn't deserve what's to happen.

Posa's picture

I agree that no one wants tp partner with treacherous US predators... Russia-China (for now) offer a credible alternative... expect to see deals emerge ... which (we would hope) will reduce chances of war

DelusionsCrowded's picture

Yes the Saudi Clan is fighting for its  life thus the imperitive to get their finances in order . Thought they might not have a choice but to go along with the West , oil is loosing value and currancy (as lithium and electric tech take over ) . 

So if the SHTF in Waharbi Town , were would the clan relocated to ? The answer to this is the answer to who they will allie with . 

Maestro Maestro's picture

How stupid you are.

Americans always vote Democrat or Republican knowing full well change is only possible if they vote for another party, ANY party except those two.

Americans = USA

Maestro Maestro's picture

So, Russia the good guys in bed with the sadistic wahhabi muslim KSA who stone women to death for having had sex?

So this is your new-and-improved world to replace the American one?

Maestro Maestro's picture

What did Putin sell Rosneft for? Petrodollars?

Yog Soggoth's picture

Syria was the line in the sand. Assad is still alive despite the difficulties. Wonder where he went to school?

ukipboy's picture

Well getting a fair price for gold would make a nice change. But can they really get rid of the price rigging cartel in New York and London? Seems unlikely without a war.

Consuelo's picture

 

 

They won't have to get rid of anything...   

The Western 'cartels' will simply desiccate as trading nations gravitate towards the Belt & Road econo-bloc and leave them twisting in the wind.  

BandGap's picture

Yep, I don't think they have to do anything. The paper certs are not redeemable for Russian or Chinese gold, they have to turn them in their banks.

I read awhile back that India has 11% of the world's gold, mainly with their populace.

JibjeResearch's picture

Yes, the Belt and Road eco block is a giant rock in the face of the US Elites.

Manipuflation's picture

I agree, but I am not sure what New York really has to do it.  As others here have pointed out, what do we value it in if not the dollar?  We have to measure value in some way.  My argument would be that gold IS the benchmark but in a dollar sense that is where we are at now.  Are they proposing that they can trade against the derivatives that are GLD and SLV and the other permutations?  We would have FX issues as we do now but it would be interesting.  

I'm fine with trading in rubles but not yuan because the Chinese peg it to the USD.  We sort of end up right back where we started wouldn't we?    

Yog Soggoth's picture

Either you are right or you are stuck in the past. Make your pick boy.

Consuelo's picture

 

 

Trading in gold amongst themselves cannot be interpreted (nor passed off in mainstream press) as acts of terrorism against the U.S.

The art of war, as it were, is to avoid armed conflict.

However, when trading nations, one by one, begin to gravitate towards the Belt & Road and a stable, hard-asset backed currency/s, which encourage trade without color revolutions, the U.S. will be powerless to do anything.

In the meantime however, they'll die trying...

 

 

GRDguy's picture

The top sociopaths of each of those nations still want gold as cheap as they can get it, which is why none of them get in the way of the gold price manipulations.   Keeping gold unrepresentative of its real price means just about everything these sociopaths want comes to them cheaper. The only losers, as always, are the workers who produce the goods, whatever that might be.

It is still lyin' and stealin'.

Davidduke2000's picture

the gold come from their own country but also they sell gold worldwide as each satellite require 25KG of gold, all electronics need gold , the demand for physical gold is very strong and dealers are charging premiums over the spot. In Canada, Kitco is charging $26 usd premium per oz.

Ivan de beers's picture

A time will come when 1oz of gold will cost you 5 Bitcoins. But dont hold your breath..

JibjeResearch's picture

Gold? Bawah ahah ahhaha ahahhaa.....

SWE_Misanthrope's picture

america will crash so fucking hard i will spray my load all over the walls.

 

sorry not america, U S S A..

 

i would never disrespect america...but america doesnt exist anymore so just call it USSA

VZ58's picture

The US better start another war soon. China and Russia are quietly carving up the future world for themselves. 

JibjeResearch's picture

We are losing world dominance because too many imbeciles in DC.

CHX13's picture

 The BRICS have a growing yellow vise that is squeezing the shrinking yellow balls of the Western CBs. 

Manipuflation's picture

Top gold producing countries:

https://investingnews.com/daily/resource-investing/precious-metals-investing/gold-investing/top-gold-producing-countries/

Top consumers of gold.

https://www.fool.com/investing/2017/08/05/the-worlds-5-biggest-gold-exportersimporters.aspx

 

I usually don't bore people to death with those sort of things but production is quite high.  One of the arguments used against the gold standard is that there is not enough gold.  This is not true and there is plenty of silver out there to make change with. 

In my considerable experience over the decades this is a good time to buy, slowly, physical bullion.  Anyone who tells you to go all in is disingenous.  Just take your time and slowly you will acquire things that are easliy transferrable and not taxable.

There is always a buyer somewhere and sometimes it is me.

MrSteve's picture

Brazil doesn't make this lists’ top ten. Gold as a money standard was too tight which is what the USA free silver movement was all about. Instead the US went with the Federal Reserve system. The euro today acts like gold as a too-tight money standard, hence depression in Club Med while Germany rolls in the dough.

IDESofMARCH's picture

US$ has been going DOWN & down as US pushes Cryptos up even more than Fiats because it doesn't have REAL GOLD. Brick  are piling up real GOLD. Cryptos will plummet the US$ and US markets. Gold will be the solid trade and currency valuator. It's time to buy gold for real protection against the Crypto and Fiat bubble.

buzzsaw99's picture

imo this is more a matter of trust than price.  many goldbugs on here say:  "if you don't have it, you don't own it" or something to that effect.  obviously russia is beginning to feel the same way.  they may also be making a comment that the current fraud spot price is agreeable to them so there could be a kernel of truth to the premise of the article.  a ton is only $41M or some shit.  I can't imagine being a billionaire without having a couple of tons stowed away in the keel somewhere.