Russian Gold: Let the Bad Times Roll

February 13, 2013 at 09:23


Uncertainty about the global economic recovery has left many investors wondering what direction the gold market will take in 2013. Russian gold miners are betting that the bad economic times will continue to roll, boosting the demand for the precious metal.

Russian gold production is expected to rise by 5 per cent year on year to reach 226 tonnes in 2012, continuing a rally that began during the global financial crisis. That’s according to Sergei Kashuba, head of the Russian Gold Industrialists’ Union, who spoke to beyondbrics on the sidelines of an industry conference on Tuesday. If gold prices remain strong, Russian gold production will continue to rise at a rate of 4 – 5 per cent a year through to 2020, he said.

Kashuba said Russia, where gold reserves are second only to those in South Africa, could rise to become the world’s third biggest gold producer by 2015. At present Russia ranks in fourth place in the global gold production hierarchy after Australia, China and the US.

Russia’s biggest gold producers London-listed Polyus Gold and Polymetal International would account for a large proportion of the country’s incremental gold output, Kashuba said. Polyus boosted gold output by 12 per cent to 1.68m ounces in 2012 and is expecting a further 7 per cent gain in output this year. Polymetal’s production rose 33 per cent to 589,000 ounces in 2012.

Gold is traditionally seen as a safe haven during economic crises and has provided investors with a good alternative to flakey real estate and equity prices since the 2008 global financial meltdown. But with gold prices underperforming other precious metals this year investors are uncertain which way the market will turn.

If the global economy recovers the gold sector is likely to underperform, according to Aton, the Moscow-based investment bank in a research note. On the other hand, the US growing debt burden could trigger sharp risk aversion in which case investors would see gold mining as the best bet. “We remain cautious on gold mining equities,” it said.