On July 26, 2019, President of Russia Vladimir Putin passed the law on the abolition of value added tax (VAT)* on investment gold. This is a significant step for a country that relies on gold in its economic development and makes record-breaking purchases of gold.
What awaits the Russian gold market
VAT on investment gold in Russia has been 20%, meaning that the buyer significantly overpays for the gold bar, losing at least 20% of the money spent when selling it. As a result, the yellow metal was not in great demand among citizens, and the Russian gold market was substantially inferior to the markets of other large countries.
According to analysts, the abolition of VAT will attract a huge number of gold traders. The gold demand is projected to increase 14 times: every year, instead of the current 3-4 tons, Russians will purchase 50 tons of gold, generating $32 million for the state budget annually.
In the chart: The Central Bank of Russia is experiencing a “gold rush”, buying more gold than miners mine. It won’t be long before a surge of interest in gold among Russian citizens arises.
What does the experience of other countries show?
The abolition of VAT, as a rule, contributes to the expansion of the gold market. China is the bright example of it, having achieved outstanding results in this regard. In 2004, the country abolished VAT on investment gold. Thanks to a successful reform, the demand for gold increased tenfold: if in 2000, only 12 tons were purchased, then in 2016 — already 285 tons.
Why did Russia make such a decision?
The price of gold demonstrates an upward trend*, having recently broken a six-year price record. Economic and geopolitical risks fuel the global interest in gold as an ideal tool of savings protection.
Russians understand that current conditions for stimulating the population to buy gold are the most favorable ones. This is a well-known fact, confirmed by the experts that forecast the continuing rise in gold prices:
A report by Citigroup, one of the world's largest financial conglomerates, states the following: the Fed's* monetary policy easing will facilitate win-win conditions for gold. This year, the price hike above $1,500 is expected, considering that the price of gold can reach $1,600 per ounce by next year.
Alexei Vyazovsky, Vice President of the Russian Golden Mint House, specializing in investment gold, believes that the price of gold may rise to $1,800 per ounce in the coming years.
Jason Hamlin, founder of the commodity market research company Gold Stock Bull, said that gold prices could rise by 45%-105% over the next 12-18 months.
On August 5, 2019, the price of gold was $1,453 per ounce.
In the chart: Russia ranks third in the world in terms of gold mining.
The leading world powers set an example, making it perfectly clear that the future lies in gold. In the coming years, gold will play a key role in ensuring economic stability. Therefore, states strive to stock up gold reserves and strengthen the domestic gold market, making a valuable Financial Security tool available to their citizens.
*The Value Added Tax (VAT) — a tax that is levied by the state from the manufacturer of the goods. To offset costs, the manufacturer includes VAT in the price of the goods, thus the VAT tax is paid by the end consumer.
*Trend — a general direction in which a process is developing or changing.
*The Federal Reserve System (the Fed) — the independent agency that oversees the commercial banking system and acts as the central bank of the United States.