Industry comments
The conflict between Russia and Ukraine is a major landmark event, and a series of changes will take place in the international economic pattern. Therefore, we conduct in-depth analysis on the economic impact after the conflict between Russia and Ukraine. This article focuses on the gold reserves of global central banks:
The US sanctions against Russia continue to escalate, and the related sanctions such as swift and the US dollar have a great long-term impact. Since the war between Russia and Ukraine, Europe and the United States have successively carried out sanctions against Russia, including: first, on February 26, the United States and Europe issued a joint statement on sanctions against Russia, and the United States and its allies promised to remove the selected Russian banks from the swift system. At the same time, the statement said it would implement restrictive measures to prevent the Russian central bank from deploying its international reserves in a way that undermines the impact of sanctions. Second, on February 28, the United States again took measures to restrict the dollar trading of the Russian central bank, so as to prevent Russia from alleviating the impact of sanctions through “emergency fund” and other measures.
The prohibition of swift system blocked the settlement of US dollar and weakened the market position of US dollar. First, the switf system has a significant impact on the Russian financial system. According to the Russian swift Association, a total of about 300 Russian financial institutions use swift, which handles more than 80% of Russia’s international settlement. Secondly, Russia’s international trade accounts for a relatively high proportion in the economy. According to wind data, Russia’s total international trade in 2020 was 573 billion US dollars, accounting for 40.5% of GDP. Thirdly, most Russian exports are settled in US dollars. From the point of view of the foreign trade of the above-mentioned products, such as oil and natural gas, which constitute an important part of the foreign trade of products of Russia. Therefore, when Russia’s international trade is limited, Russia will turn to ruble or other currencies for settlement, and the market position of the US dollar is expected to decline accordingly.
Russian dollar trading is limited, and the global foreign exchange reserves may meet the transformation. From the perspective of the international reserve status of the US dollar, the US dollar currently accounts for a relatively high proportion of global foreign exchange reserves. As of the third quarter of 2021, according to IMF data, the global foreign exchange reserves totaled US $11.97 trillion, including US $7.08 trillion, accounting for 59.2% of the global foreign exchange reserves. In this incident, in addition to indirectly affecting Russia’s trade through swift, the United States directly imposed sanctions on Russia through the US dollar, which will arouse the concerns of other countries with large US dollar reserves to a certain extent. It is expected that the global reserve status of the US dollar will further decline in the future.
The strategic position of gold is obvious. Under the weak dollar, the demand for global gold reserves increases. Judging from the gold reserves of various countries in the past, the major emerging economies represented by China have continuously expanded their gold reserves in the past 20 years. Specifically, in the past 20 years, China National Gold Group Gold Jewellery Co.Ltd(600916) reserves have increased by 1553.3 tons, India’s gold reserves have increased by 318.9 tons, Saudi Arabia’s gold reserves have increased by 180.1 tons, Turkey’s gold reserves have increased by 600.0 tons, and South Korea’s gold reserves have increased by 90.8 tons. Looking ahead, with the decline of the international status of the traditional mainstream currency US dollar, it will be difficult to find other credit currencies that can replace the US dollar in the short term, and the reserve assets of countries around the world may gradually turn to assets such as gold.
Investment advice
The increase in global demand for gold reserves may push up the price of gold, and gold related production enterprises may benefit, such as Zijin Mining Group Company Limited(601899) , Chifeng Jilong Gold Mining Co.Ltd(600988) , Shandong Gold Mining Co.Ltd(600547) , Western Region Gold Co.Ltd(601069) , etc.
Risk tips
International geopolitical changes, abnormal fluctuations in commodity prices and changes in macroeconomic policies.
