Title : Gold investors face bind over bars from tarnished Russia

Aug 01, 2022 03:56AM ET

By: AnalysisWatch

Some investors want to get Russian gold off their books, but it's not so easy to get rid of.

The 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 the hundreds of tons of gold that have remained in commercial vaults since before the conflict began.

Fund managers who want to sell the metal to avoid the growing reputational risk of holding Russia-linked assets in their portfolios could trigger a costly race to replace it with non-Russian gold, according to bankers and investors.

The investor's quandary reflects Russia's weight in the global bullion trade and its hub, the London market, where gold worth $50 billion changes hands in private transactions every day.

A rapid sell-off of gold from Russia—one of the top three suppliers—could disrupt that trade by undermining the principle that all bullion in the London trading system is interchangeable, regardless of its origin, according to three senior bankers at major gold trading banks.

To bolster 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 clients and other traders to do the same. They declined to be named because of the confidential nature of the talks.

However, the large amount of Russian gold on the London market and the rapid emergence of Russia's pariah status following the invasion of Ukraine put the banks in a difficult situation, according to lawyers and market experts.