In 2022, Russia positioned itself as the United Arab Emirates (UAE) primary gold provider, surpassing previous leaders like Ghana, Zimbabwe, and Mali, despite its geopolitical tensions and entanglement with Ukraine. The United Arab Emirates imported 96.4 tons of gold from Russia in 2022, which is more than it did from any other nation, according to recent UN Comtrade data. The new relationship between Russia and the UAE likely bloomed from import restrictions placed on Russia following the start of the Ukraine war.
After the beginning of the Ukraine conflict, numerous nations, including Japan, the U.K., Canada, the European Union, the U.S., and Switzerland, banned Russia from importing more bullion after stockpiling record-breaking reserves. Prior to this ban, Russia sent most of its gold to London for storage and trading.
With the restriction in place, Russian gold producers needed a new outlet, so they turned to markets that had not imposed such policies. The new markets included the UAE, China, and Turkey, which had not placed import bans on Moscow.
With Dubai being the most populous city of the United Arab Emirates, it quickly became a major trading hub for gold, as Russia turned here rather than its previous distributors. The UAE has been building its status in the gold-trading market for the last 20 years, though this shift quickly boosted it to becoming a critical player in the precious metals importing and exporting game.
The UAE imported approximately one-third of Russia’s total annual mine production for 2022. The amount of gold the nation imported came to 15 times the level imported from the previous year. 2022 was a record-breaking gold-buying year for many central banks, including the UAE.
The Gulf state accounted for 75.7 tons of gold imports from Russia between February 2022 and March 2023. For comparison, in 2021, the figure was just 1.3 tons for the year.
The next biggest importers for the UAE were China and Turkey, each bringing in approximately 20 tons of gold between February 2022 and March 2023. According to data from customs, Turkey, China, and the UAE accounted for approximately 99.8% of Russia’s total gold exports for the period.
Before Russia took over Mali, Mali was the UAE’s biggest gold importer, accounting for nearly 16% of the nation’s gold. According to the Observatory of Economic Complexity, the total value of this gold came to $7.3 billion in 2021. Right after Mali were Zimbabwe, Sudan, Niger, Uganda, and Ghana in line for the next largest gold importers.
Aside from blocking Russia’s gold-importing options, Western nations took other actions to cut off the nation’s power at the start of the Ukraine war. One of these actions included freezing $640 billion in Russian reserves, including both gold and foreign exchange reserves, which Russia referred to as “theft.”
The action not only tightened conflicts but ignited the gold-buying spree, pushing BRICS (Brazil, Russia, India, China, and South Africa) nations to purchase more gold as a means to protect their wealth from the actions imposed on Russia by Western nations.
According to a survey on central banks by Invesco, a “substantial share” of central banks expressed concern about the precedent that Western nations set. Around 60% of the survey respondents revealed that the action made gold seem more appealing, while 68% reported that their nation intends to or already is storing their gold reserves domestically for added security. In 2020, the second figure was just 50%.
“We did have it (gold) held in London… but now we’ve transferred it back to own country to hold as a safe haven asset and to keep it safe,” one of the central bankers explained in an anonymous statement.
As Russia takes over the lead position for gold providers to the UAE, the way nations trade and use currency continues to shift. The movement from the U.S. dollar to gold appears more and more real each day as central banks continue stockpiling gold to hedge against inflation, protect their wealth, and weaponize the U.S. dollar.
“That weaponization of the dollar is part of the reason why Russia, China, and other BRICS nations have vied for an alternative to the dollar,” Skylar Montgomery of GlobalData TS Lombard explained.
Whether gold will reign supreme as the future global currency of choice is highly uncertain, though we do know that numerous nations, like Russia, are taking advantage of its power right now. With this movement, gold continues gaining support from major central banks.
As always, investors should consult their financial advisors before making any portfolio decisions.