The Finance Ministry is cutting back purchases of precious metals and gems for Gokhran (Russia’s precious metals and gems repository) this year by 2.5 times, from 12 billion rubles to 5 billion rubles, “Izvestia” reported today.
At the same time, large-scale sales of gold and diamonds are planned to replenish the state treasury.
As of 1 October, the paper reports, the Ministry of Finance had only spent 19.9% (or 2.4 billion rubles) of the 12 billion rubles budgeted for purchasing precious metals and stones.
The Ministry’s press service told “Izvestia” that they only planned to spend about 7 billion rubles in total this year.
In conjunction the Finance Ministry intends to increase sales of precious metals and stones in the next three years. The Ministry plans to sell off about 4.522 billion rubles of the commodities this year, 10.411 billion next year, and another 10.5 billion in 2018-2019. These sales will be used to “provide operational funding for the federal budget deficit”, the Ministry claims.
In 2015-2016, purchases of these assets were doubled, analyst Roman Tkachuk told the paper. He stated that the Ministry is now returning to its pre-crisis patterns:
“Between 2012 and 2014 Gokhran bought mainly diamonds, but in the past few years, most of the funds have been invested in precious metals.”
“The relatively high prices prevailing in the market today will allow the Finance Ministry to profitably sell these assets,” the paper claims, “World prices for precious metals and diamonds have been fairly stable this year.”
“The Ministry’s decision will have a moderately negative impact on the diamond market, experts say.”
Gokhran purchases from state diamond company, “Alrosa” are secret, but according to Tkachuk, they range somewhere between “1 and 10 billion rubles a year” (or only 1-5% of the company’s total revenue).
“But the State Fund has traditionally bought… the most expensive stones, the export of which is prohibited abroad. So the news is marginally negative for the diamond company.”
Another analyst told “Izvestia” that the reduction of state purchases from “Alrosa” could make it easier for the company to sell its product abroad. But, he added, “the sale of state reserves will put additional pressure on world prices, which are already reduced in recent years.”
“At the same time, gold producers are not affected: on the one hand, the market is able to support the demand, on the other – procurement plans are stored in the Bank of Russia,” the paper wrote, quoting the head of the Union of Gold Producers:
“So far we have to more substantially cooperate with our other creditors in the market, especially with Russian banks, as well as more and more active fund development in the Far East and the Baikal region. And the high domestic liquidity of gold, as always, is provided to us by the Central Bank.”