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62 I Eastern Europe bne April 2021
GV Gold is on a tear with production doubling in the last two years and profits up 90% in 2020 y/y.
GV Gold on a roll
The Russian central bank goldbug
There have been some big changes in the global gold market in the last year. Russia has been actively building up gold as a share of its gross international reserves (GIR) since 2007, as part of a long-term policy to accumulate more non-US dollar reserve assets, and
holds 2,298 tonnes of the yellow metal according to its last report at the end of the fourth quarter of last year. Russia’s gold reserves were worth $130.3bn as of March 1. (The central bank delays the release of some of its reserve information, like bullion tonnage,
so as not to affect the market.)
The CBR was one of the biggest winners in the 2020 gold price rally because
of this pile of gold: Russia’s gross international reserves (GIR) rose from $570bn in February 2020 to $586bn a year later in the same month, after the value of its monetary gold gained over $25bn in value by the end of August 2020 to $144.6bn before falling back again in the first months of this year.
The CBR was already comfortable with the level of gold in its reserves in the middle of last year and after 13 years of buying it abruptly stopped accumulating gold. CBR Governor Elvira Nabiullina said last year that the CBR’s “comfort level” for reserves is $500bn, but now that point has long been left behind the CBR has relaxed a bit.
“I think it is also connected to the [coronavirus] COVID-19 pandemic, as the central bank wanted to free up more cash to fight it,” says Schetinsky. “But it doesn't affect us, as there are no restrictions on gold producers to sell their gold to anyone who wants it based on LBMA price.”
GV Gold works with the private Russian bank and international players represented by Société Générale that buy gold and trade on the bullion markets. In 2020, the company opened accounts on the Moscow Exchange and gained access to foreign exchange trading and trading in precious metals
Profits soar
Obviously 2020 was a good year for all gold producers, but it was an especially
Ben Aris in Berlin
Gold is the traditional store of wealth in times of crisis, so
not surprisingly prices soared an average of 25% during the annus horribilis of 2020, topping $2,000 per troy ounce briefly in August last year.
But after the slew of coronavaccines started getting certified last autumn, economies and commodity markets began to recover in November and the counter-cyclical gold prices began to slide. By January they had dropped below the $1,800 mark and are expected to stay there for much of this year, although things remain sufficiently uncertain that some predict another gold price rally in 2021.
Goldman Sachs in November had a target of $2,300, as recovery from the coronavirus-related recession fuelled higher inflation and demand, pent up for a year, was finally released. India and China in particular went back to buying.
Capital Economics takes a more cautious view of the pace of recovery. The upside to the gold price in 2021 will be limited to around $1,900 in 2021, or $92 above the average price for the first nine weeks of this year.
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GV Gold is one of the top five gold producers in Russia and strategy director Roman Schetinsky told bne IntelliNews in an exclusive interview that he has
a positive outlook on gold and agrees that the price will stay at least $1,900 in 2021, but could go even higher.
“There will be a growth tsunami: the water leaves the shore as the wave approaches, but then it comes crashing back,” says Schetinsky. “The price could rise as high as $2,000 and then stay there a long time.”
Part of what could drive gold prices higher is the US debt that currently requires more than $300bn a year to service, but annual gold production
is only worth $200bn a year. That
will keep the pressure on gold’s price, denominated in US dollars, upward in the long term, argues Schetinsky.
However, the company doesn't
base its investment decisions on these predictions. It has a working assumption of $1,500 per oz to assess the viability of a deposit with IRR more than 15%. “We remain very conservative when considering a new project,” Schetinsky adds.