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Last month, sanctions against Russia upended the oil market, the world’s largest commodity market. Now the leaders of the Group of Seven are proposing to repeat the trick with the second most important trade, gold. Don’t expect the same reaction.

Between the first proposal for crude sanctions by European Commission President Ursula von der Leyen in early May and the introduction of the package a month later, Brent prices rose by around 14%, in addition the 8.4% increase they had seen since the start of the invasion of Ukraine. in February.

Gold has had a quieter year, down 3.9% since Russian forces crossed the Ukrainian border. Despite Moscow’s status as the third-largest producer of the yellow metal, import bans due to be announced at the G-7 meeting this week in Germany are unlikely to reverse this bout of weakness.

In part, it’s just a function of market scale. In a normal year, Russia accounts for around 12% of global crude exports. Almost every barrel that comes to the surface is used up within a year, except for movements within about 90 days of reserves held by major energy importers.

Gold, due to its price and density, is much easier to store. You can easily place enough bullion to buy a typical oil tanker’s million barrels on a six-seater dining table. ton of stock. Around a quarter of gold consumption in a typical year comes from the sale or smelting of jewellery, coins, bullion and industrial metals – and these recycling figures tend to rise each time. that a shortage of mining supply puts upward pressure on prices.

Russia is unquestionably a major player. The 300 tons produced last year were exceeded only by China and Australia, and accounted for 10% of the world total. However, what matters for world trade is not production, but net exports – and on that basis, Russia is a minnow.

Its cumulative gold trade surplus over the past 10 years stands at $60.38 billion, less than the $60.65 billion that Japan has accumulated by selling off its private and public holdings of the metal (the country has only one gold mine in operation, which is not likely to contribute significantly to this sum). Similarly, Hong Kong has been a much larger net exporter of gold than China’s largest producer, thanks to its role as a conduit for foreign capital to the mainland.(2)

Domestic demand in Russia’s increasingly inward-looking economy has normally been more than enough to deplete everything coming out of its mines. Exports by miners were de facto banned until 2020, meaning Russian banks were the only entities able to sell bullion abroad. What has been produced has been mostly hoarded by the country’s central bank, whose reserves have more than doubled from 1,035 tonnes on the eve of the Crimean invasion in 2014 to 2,302 tonnes currently, in anticipation of isolation from international financial markets.

Certainly, Russian mining supplies have been a significant new presence in the global market since the export ban was lifted two years ago. Even so, almost uniquely among commodities, the gold market is not really driven by flows of newly processed refined metal from ore, but by the broader macroeconomic backdrop. Although there may be less Russian gold in the future, the opportunity cost of buying metal without a return is also much higher at a time when consumer prices are rising by 8, 6% per year in the United States and where interest rates are heading towards their highest level. level since 2008.

In a typical year, exchange-traded funds shift their positioning in the gold market by around 500 tonnes, driving the price up and down as investor appetite shifts from optimism to pessimism. This will be far more influential than whether the 300 tons produced by Russian mines end up in a G-7 vault, especially considering that the largest net importers – China, India and the United Arab Emirates – do not even sign until the sanctions.

The world barely noticed the arrival of Russian gold on international markets two years ago, and it was unfazed when it was suspended from the London gold market in the immediate wake. of the invasion of Ukraine. We won’t notice it when it’s gone either.

More from this writer and others on Bloomberg Opinion:

• The era of central bank credibility is over: John Authers

• How China’s Covid-Zero Policy Gives Gold a Polish: David Fickling

• Gold’s strange behavior shows it’s not a safe haven: Jared Dillian

(1) Although you need to strongly reinforce the table to support the weight of two metric tons.

(2) Although cross-border movements of bullion are technically considered financial transactions rather than commercial movements, in practice the two often appear to be confused.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

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