Russia & Central Asia’s Gold Deposits – China’s RMB Reserve Backup

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Op/Ed by Chris Devonshire-Ellis

Increasing de-dollarization and decreasing US trade indicate renewed interest in gold reserves

Both Russia and China, faced with trade problems with the United States, have begun to make moves to reduce their use of the US dollar and expand the use of their respective currencies in bilateral trade, with gold as a commodity also being used as a reserve to trade with countries under heavy US financial sanctions, such as Iran. This is having the gradual effect of repositioning gold as a unit of wealth and stability, once again making it a sought after commodity and potential reserve currency. Russia has the worlds largest gold deposits, while countries such as China and India are the worlds largest consumers. As the world appears to be tipping into a era of instability, the need for gold is increasing. Russia’s Gold Reserves now stand at US$100 billion.

China also recognized this some time ago, and launched the China Silk Road Gold Fund in 2015, which is now trading on the Shanghai Gold Exchange. According to Xinhua, over 60 countries have invested in the US$16 billion fund, which aims to provide financing to extract gold from existing, but underutilized deposits. The main concept is that the fund will invest in extraction equipment and technologies, then split the value of the mined gold with the sovereign nation whose deposits are being exploited; this, both, creates value for the fund and generates much-needed sovereign wealth for the participating nations.

Interestingly, although India has not signed up to China’s Belt and Road Initiative, it has invested heavily in both China’s Asian Infrastructure Investment Bank and the Silk Road Gold Fund. This is significant because China and India are collectively the world’s two biggest consumers of gold. The 70 countries that have signed up to the Belt and Road Initiative also account for more than half of the world’s gold production and 80 percent of the total global gold consumption.

The fund’s two biggest initial shareholders are gold companies hoping to get in on the mining industry at a good price. Shandong Gold Group bought 35 percent of the shares and Shaanxi Gold Group bought 25 percent.

Roland Wang, the Managing Director of the World Gold Council in China, has said “the initiative will help the Chinese gold mining companies jointly explore the precious metal industry in those countries [along the Silk Road].” The first in what is likely to be a long line of deals involving China’s gold companies in the region has already gone through. In May 2017, Russia’s Polyus Gold (OPYGY) said it would cooperate with China’s largest gold company – China National Gold Group – to explore Russia’s biggest gold deposit at Natalka in the far eastern part of Magadan’s Kolyma district. The fund may also include setting up an exchange-traded fund that will invest in gold and gold mining companies.

Here, we take a look at where the gold deposits are that China’s Silk Road Gold Fund is likely to target in Russia and Central Asia. Gold reserves are the amount held by the respective Central Bank. Known gold deposits are estimates of as yet unmined gold. Figures mentioned are in metric tons.

Country Gold reserves * Known gold deposits ** Key areas
China 1842 2500 Shandong
Afghanistan 21.97 30+ Panj, Samti, Zarakshan
Armenia 0 220 Tukhmanuk, Zod
Azerbaijan 0 400+ Gedabek, Gosha
Belarus 46.49
Georgia 0 14 Sadrisi
Iran 907 320 Zarshuran
Iraq 89.82 30 Aldajh, Western Desert
Kazakhstan 295.66 800 Komarovskoye, Vasilkovskoye
Kyrgyzstan 6.36 616 Kumtor
Mongolia 3.09 400+ Gatsuurt, Oyu Tolgoi
Pakistan 64.56 1,200 Reko Diq
Russia 1828.56 12,500 Krasnoyarsk, Irkutsk, Magadan, Amur, and Chelyabinsk
Tajikistan 15.14 430 Jilau, Pakrut
Turkey 525.79 800 Mastra, Ovacik, Uşak- Kişladag
Turkmenistan 5 10 Tourkyr
Uzbekistan 0 5,000 Muruntau
* Data from Trading Economics
** Data from Mining Technology & Rare Gold Nuggets.

The above data demonstrates the immense wealth still held in the form of gold deposits in the Central Asian region, with Azerbaijan, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Tajikistan, Turkey, Uzbekistan, and the gold behemoth that is Russia, all possessing significant deposits in excess of 400 tonnes. By comparison, China currently has about 8 percent of all known global gold deposits at about 2,900 tons, and is mining this at an rapidly increasing rate; in 2017 and 2018, it produced 470 tons. This accumulation of gold by China and Russia has had benefits too. When the US labelled China “a currency manipulator” a few days ago, the price of gold shot up. China and Russia of course benefited.

Of the countries shown, all have signed the Belt and Road MoU with China, and all have bilateral investment treaties in place with the country. All possess good diplomatic and trade relations, showcasing China’s efforts to secure the potential for gold generation.
Excluding China, the Central Asian countries featured collectively have gold reserves of 4,108 tons and known gold deposits of some 22,770 tons. They remain within the geopolitical orbit of either Moscow or Beijing. In comparison, the U.S. has known reserves of 4,582 tons, with an estimated 9,500 tons still in unmined deposits.

How Moscow and Beijing wish to utilize these deposits remains unknown, although both are increasing their capacity to mine, produce, add to national reserves and export. But increasingly, it also suggests that both China and Russia have worked out the longer term United States strategy, and in terms of the US-China tariff war, China has been preparing for several years and has been taking note of how the United States has treated Russia, as well as how Moscow has reacted to that to both diminish the impact and re-position the economy. Both China and Russia consider the United States economy as having been “weaponized” and with the ability to be used against them if they do not follow general US policy. They collectively view the US as an “unreliable” trade partner.

If that is the case, then these latest developments – the US-China trade war, continuing sanctions against Russia, amongst an increasing number of other disputes are signs that bilateral trade between Russia, China and the United States is going to be an issue for some considerable time, and that both Moscow and Beijing are both preparing and arming themselves economically for the struggle.

This article has been adapted and updated from the piece “China’s Silk Road Gold Fund – The Central Asia Deposits” which was published on 21st February 2018.

 

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