Ukraine sells its gold to get money for goods

Gold was popular during wars. It is a known fact that many wars are financed by governments selling their gold suppliers. Many people have been thinking about buying more gold in Russia for a while. A few months ago before the war talks, people wondered if Russia was buying gold to try to de-dollarize its economy. Turns out they had more planned. It turns out that even the invaded country had to turn to gold to get money not only to fund its military but also to buy goods as the country was cut off from the rest of the world.

A central bank official claims it has sold a lot of their gold since the Russian invasion of Ukraine in February.

Deputy Governor of the National Bank of Ukraine (UNB) Kateryna Rozhkova said on July 17 that the central bank has sold $12 billion worth of gold since the Russian invasion. According to her, they had to sell gold so that importers would be able to goods the country needed. The governor made it a point to emphasise that the sale was not intended to increase the Ukrainian currency.

This might help explain why central banks across the globe continue to hold gold in their reserves. It is a very liquid asset without a counterparty risk.  Gold is meant to be the most reserve investment asset. It helps hedge against political and economic risk and can act as an anchor in times of crisis.

The World Gold Council reported that central banks added more than 462 tons of gold to global reserves in 2021. That’s up 82% from 2020. Last year was the 12th straight year of net buying. During this period, central banks bought a total of 5,692 tonnes of gold. Year to date, the central bank’s net purchases of gold through May were 138 tonnes.

It is not clear how Ukraine sold so much of its gold. At the time of the Russian invasion, Ukraine National Bank held about 27 tons of gold worth about $1.6 billion in its reserves, according to the WGC. In other words, the UNB  sold over 7 times its total gold assets. This seems incredible! The data doesn’t add up unless Ukraine had some secret stash no one knew about.

It’s more likely that the country had to draw on some of its domestic gold reserves from commercial banks or other institutions. The largest commercial bank in the country, the PrivatBank, nationalised in 2016 could  have been a likely source of some of that gold.

It is also possible that other countries or private entities supply the Ukraine with gold in aid. For instance, it is known that Sweden gave more than 55 milion USD in aid to the Ukraine. Other countries also did the same.

Ukraine isn’t particularly a gold mining country. According to a Mining World report, Ukraine has nearly 3,000 tons of gold, and very few of the mines that are in the country were operational before Russia’s invasion. Regardless of what mechanism used, Ukraine clearly relied on gold as a source of currency while the war continues. As Gold Buyers Melbourne continue to see high demand of people selling their jewellery and coins one can conclude its not only Ukraine selling its gold at this present moment.

Source 1: https://talkmarkets.com/content/global-markets/ ukraine-sells-billions-in-gold-to-raise-cash-to-buy-goods?post=361491

Source 2: https://tfiglobalnews.com/2022/07/21/ zelensky-sells-gold-worth-billions-of-dollars-that-didnt-even-exist/

Melbourne Gold Company

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