Changes in Soviet Union affect world gold market

Controversy continues to surround the gold situation in the Soviet Union, where the winds of political change have caused economic instability.

The chief beneficiary of the confusion surrounding the yellow metal appears to be the global gold market: the price of the yellow metal rose to US$369.10 per oz. in London. Gold, which approached US$400 in January, has traded as low as the mid-US$340 range this year.

The latest manoeuvrings in the Soviet Union have the Russian parliament taking control of the state bank, Gosbank, and the bank for foreign economic affairs, Vneshekonombank, from the Soviet government. With the breakup of the USSR, the large Russian republic, led by President Boris Yeltsin, has moved to consolidate its power.

The final word on the amount of gold reserves remains to be heard. Recently, the chief economist at the Kremlin was quoted as saying the Soviet Union in 1990 exported more than 470 tonnes gold, representing more than half of the reserves reported at the beginning of that year. Current reserves are said to be 240 tonnes. In 1989, the economist said reserves peaked at 850.4 tonnes. The 1990 export figure is higher than what some Western analysts have estimated.

A Soviet parliamentary official then disclosed that Gosbank has no gold reserves and, for all intents and purposes, is bankrupt.

Yeltsin announced his republic would take over responsibility for gold and diamonds, most of which are produced within Russia, and suspend all Soviet oil export licences.

In making his announcements, Yeltsin continues to challenge the authority of Soviet President Mikhail Gorbachev, whose government would traditionally control oil exports, gold and diamonds.

Analysts have blamed the weakened gold price in part this year on Soviet sales of gold reserves. A decision by the Group of Seven (seven industrial nations, including Canada) to defer Soviet debt payments is said to have helped to bump the gold price upward.