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Banks Selloff Russian Gold As LBMA Sets Up Database To Track Russian Bars

Gold worth $2.2 billion has left exchange-traded funds (ETFs) accounts since July, according to calculations Reuters made using publicly available data, as some banks and asset managers have sought to remove Russian gold from investors holdings. 

The gold held in the ETFs is managed by banks, who may provide any gold that is qualified for trading in London for the funds, including Russian metals produced prior to the Ukrainian War. 

Reuters found that around July 12, ETF funds held between 2,540 tonnes of gold. By late November, the total had fallen 10% to 2,295 tonnes. The eleven funds account for two-thirds of all the gold held by ETFs worldwide. 

While in July all eleven held Russian metal, by late November the proportion of Russian gold in the stockpiles had fallen. Five of the funds saw the amount of Russian gold they hold fall by more than $40. Two of them rid their vaults of Russian gold altogether.The proportion of Russian gold in three funds rose a little bit. 

ETF gold is managed by banks, which can give the funds any gold eligible to trade in London, including Russian metal manufactured before the war in Ukraine. Funds can ask for gold of a particular type or origin to be prioritized.

Russia is one of the world’s biggest producers of gold bullion and many gold bars in Russia.

“Some clients click on the bar list, see a lot of Russia and they are like, ‘Whoa, what’s going on?’,” one source said.

“Explaining it to them is difficult. We want to make the barriers to entry (to the fund) as low as possible and anything that would make them doubt that this is the right product we try to eliminate,” the source added.

Banks originally did not want to remove Russian gold, fearing a sell-off could cause market chaos. 

“We didn’t want a knee jerk sell-off of all the Russian metal,” said an executive at one of the banks storing gold for ETFs, who spoke to Reuters on condition of anonymity.

“It’s been phased in a controlled, business as usual manner,” the executive said of the removal of Russian gold.

Other changes are coming to the worldwide gold market. The London Bullion Market Association (LBMA) is creating a database of Russian gold bars held in banks in London, an industry group said, in an effort to prevent Russian companies from looting them or sanctions from Russia’s Central Bank.

LBMA announced it is suspending its sourcing of gold and silver from six Russian-based refiners indefinitely, citing growing economic sanctions against Russia. The six Russian-based refiners are facing growing economic sanctions against Russia.

The London bullion market is the largest in the world, and the suspension is expected to significantly affect the six Russian-based refiners trading partners. Gold and silver bullion bars processed following suspension orders on those refineries will no longer be accepted in the London bullion market.

Russia has since proposed that it will establish the Moscow World Standard (MWS) as a new precious metals trading standard. The U.S. and other Western countries have sanctioned numerous Russian companies and banks, and Russia, since the Kremlin sent troops to Ukraine.

The LBMA also controls the best-delivery lists of gold and silver traded in the London bullion market. The bankers who now control this market are from countries which only supply 22% of global gold. The alliance that the Russian central bankers want to build represents between 57-62 % of the global supply.

London is the largest trading hub in the world for gold, and Russia is one of its largest producers. Figures from eleven funds suggest that about 7 percent of all gold in their possession—about 160 tons, valued at about $9 billion at present—is Russian. 

Banks and the LBMA are loath to reveal just how much Russian gold is held in storage, but disclosures by investment funds holding gold show hundreds of tonnes were piled up in London, Zurich and New York ahead of the Russian invasion of Ukraine in February.

The LBMA blocks new Russian gold bars from being sold on the market, but bars made before the Ukraine war are still available for trading. Shortly after Russia invaded Ukraine, the LBMA banned six Russian processing facilities from making deliveries to the EU, US, and UK. 

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