To:Bobby Yellin who wrote (326) From: mikesloan Tuesday, Jul 8, 1997 8:38 PM Respond to of 80051
POG of gold starting to sell off again $318.45 down $1.40
To:John Barendrecht who wrote (312) From: Abner Hosmer Tuesday, Jul 8, 1997 9:03 PM Respond to of 80051
By Lynnley Browning MOSCOW, July 8 (Reuter) - Russia said on Tuesday it was moving to liberalise its promising but tarnished gold sector, but admitted the timing could not be worse after world bullion prices dropped to 12-year lows. "Look where the problem is -- the world market price for gold is falling quickly," Central Bank Deputy Chairman Alexander Potyomkin told a briefing on Tuesday.
"In dollar equivalent terms, the price has already killed mining costs in (our) far-flung regions."
Russia, the world's fifth largest gold producer with the world's third largest reserves in the ground, is struggling to reverse a significant decline in bullion production by making it attractive for banks to lend money to mines to finance output.
Potyomkin said President Boris Yeltsin would soon sign a long-awaited decree allowing banks to export precious metals -- a key step towards making it worth their while to finance gold output at home, where demand is limited.
But Russia still keeps a tight rein on the amount of gold banks can buy, and officials said the decree would not flood markets since banks held a mere five tonnes.
"What can five tonnes do to the market, which can easily digest such volumes?" asked Sergei Kyshtymov, head of the Central Bank of Russia's precious metals department.
The world price of gold has crumpled to around $320 an ounce, most recently on sales by Australia's central bank.
"Now our gold will just sit in the ground," said Viktor Tarakanovsky, board chairman of Russia's Gold Prospectors' Union, adding that weak prices would not encourage banks to push for greater legislative leeway to finance output.
Private Russian citizens can now buy and sell small amounts of gold on the domestic market, and cash-strapped Moscow has said banks and foreign and domestic investors are key to tapping big Siberian reserves. But most domestic officials say recent legislative changes lack substance or are not yet implemented.
"It's a bit early to talk about the effect of gold market liberalisation, because there isn't one yet," said Mikhail Katsman of Russia's Union of Gold Industrialists. "But it will in theory raise liquidity on the domestic market."
Russia's gold sector is still more politically than economically driven, with Moscow slow to allow changes to a strategic industry that brings it billions of dollars in reserves value.
Slumping world bullion prices may have international investors worried gold has become just another asset, rather than a special, inflation-hedging commodity.
But the slow pace at which Russia is moving to liberalise its precious metals sector shows it still views gold as more than just a metal.
Many miners prefer to wait for meagre handouts from the state and produce what they can, rather than arrange for loans from commercial banks and work out things like hedging strategies.
Officials see Russia's 1997 gold output in the range of 95-110 tonnes, down from about 124 tonnes in 1996.
"Fifty percent of gold is mined beyond the Arctic Circle, but the price of electricity, heat, fuel is several times higher," Kyshtymov said. "The mines become uncompetitive."
Tarakanovsky said mines were not inspired by high commercial bank lending rates of 40 percent, revenue taxes of 50 percent and the astronomically high cost of fuel in the regions.
"They (the mines) are not only uncompetitive, they are unable to produce," Potyomkin added.
The central bank holds 397 tonnes of gold, which it valued last week at $2.5 billion.
It aims to increase reserves by 90 tonnes a year over 1997 and 1998 -- meaning commercial banks could have little available for export, limited capital for financing mining operations and few chances of boosting Russia's bullion production.
"If you want to join civilisation," Tarakanovsky said, calling for more decrees to liberalise the sector, "you have to have civilised measures."
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