Russia To Double Gold Reserves, Boost Mining

Thursday, November 24, 2005

Russia will double the share of gold in its currency reserves from 5 to 10%. The Moscow Times reports that president Vladimir Putin (pictured left) backs the central bank's plan and also wants to introduce measures to boost the gold mining sector of the fifth-largest gold producer in the world.
"I support the proposal that the Central Bank pay greater attention to precious metals in forming our gold and foreign exchange reserves," Putin said.
Natural Resources Minister Yury Trutnev said that the country's annual gold output could hit 250 tons by 2015.
This year gold production is set to drop by 3.1 percent, to 175 tons, and level off at about 160 tons per year through 2010, according to the Union of Gold Producers.
"Obviously, there is a gap between our potential and the real situation," Putin said at a meeting with representatives of the local gold industry.
The president said that the mineral extraction tax for gold fields and other natural resources should be flexible to compensate for differences in the quality and location of mines.
"We must discuss possible measures, including fiscal measures, [to boost] the viability of developing remote fields. This concerns not only gold, but other resources, including oil and gas," Putin said.
The government is working out a system to differentiate the rates of the mineral extraction tax, Trutnev said, and will test it out on the oil industry.
"If this model works in the oil sector, we can spread it further," Trutnev said.
The changes to the tax are not expected to kick in before 2007, however.
Among other measures to help the gold industry, the government plans to privatize its gold-processing firms and also allow miners to directly sell processed gold abroad.
Russia currently exports 133 tons of gold per year, said Finance Minister Alexei Kudrin.
"Today, (gold-processing) enterprises don't need state support. We are gradually putting them up for privatization," Kudrin.
There are nine major gold-processing companies in Russia, four of which are under state control, he said.
Kudrin said the government might also allow individual entrepreneurs to mine gold. Currently, this kind of activity is forbidden and qualified by the Criminal Code as a crime.
The shifts in Russia's currency reserves are all to the disadvantage of the US dollar. Only one year ago Russia held 85% of its reserves in dollars. This share will sink to 60% with the move to more gold as Euros now account for 30% of forex reserves.
Russia is now the third country after Argentina and Mexico that has officially declared to up its gold reserves. The Deutsche Bundesbank has been resisting all attempts by the government to sell part of its gold hoard in order to ease the budget deficit problems of Germany. Austria's central bank said last week that gold is an important part of its currency reserves.
At his last testimonial on Capitol Hill Federal Reserve chairman Alan Greenspan had said that gold is the ultimate money in times of a serious crisis. He said that during world war II foreign payments were transacted in gold.


Wikinvest Wire