Fundamentals of Physical Gold Investment in Russia
The physical gold market for investors in Russia has its own peculiarities. Here, investment gold coins are the main instrument for investments. This is due to the fact that other forms of physical gold, such as bars and jewelry, have a number of serious drawbacks.
Bars, for example, are not very attractive to investors due to the 20% VAT on purchase, which is also not refundable upon resale. In addition, their circulation on the secondary market is strictly regulated: individuals are prohibited from trading bars among themselves. The state also carries out special control and accounting by number on each bar, which does not always align with the interests of owners.
Jewelry also cannot be considered an effective financial investment. The spread between the purchase price of a finished product and its value when surrendered as gold scrap completely negates such an investment. Thus, investment gold coins have become a key means for investing in physical gold in Russia.
| Instrument | Features for the Investor |
| Gold Bars | VAT (+20% non-refundable), regulated secondary market circulation, special state control and accounting. |
| Jewelry | Huge spread between purchase price and value when surrendered as gold scrap, ineffective for financial investments. |
| Investment Gold Coins | Main instrument for physical gold investment, high liquidity, minimal spread on mass-produced coins. |
Russia in the World Club of Gold Coin Minting
Russia is one of the few countries in the world where mass minting of gold investment coins from precious metals takes place. The mintage of such coins is in the millions, indicating a developed culture of physical gold investment.
Among other countries that practice mass minting of investment coins, the following can be highlighted:
- Austria
- USA
- Canada
- Australia
- China
- South Africa
A number of other states, such as Great Britain, Belarus, Kazakhstan, and Armenia, also issue investment gold coins, but in more limited editions. All other countries in the world primarily mint commemorative and collectible coins, characterized by extremely small production volumes.
Historical Significance of Gold Coins in Russia
Such a developed tradition of minting gold coins is partly due to Russia's historical experience. In the 20th century, the country endured large-scale political upheavals, accompanied by confiscatory monetary reforms and the depreciation of deposits. Under these circumstances, paper currency, bank deposits, and sometimes even real estate proved to be unreliable instruments for long-term savings and wealth transfer.
It was gold coins that demonstrated their exceptional value, allowing owners to preserve their savings through all financial and socio-political upheavals. This experience fostered a special trust in physical gold as a reliable asset.
Choosing Gold Coins for Investors
If the goal is investment rather than collecting, then the most widely circulated coins should be acquired. They always have the minimal spread, which is the difference between buying and selling prices. This ensures maximum liquidity of the investment.
In Russia, such a coin is the "George the Victorious" with a face value of 50 rubles. It contains 7.78 grams of pure gold, which is equivalent to a quarter of a troy ounce. In addition to investment coins, there are numerous commemorative collector coins with limited editions, which are more suitable as a valuable gift or an item for collection, but not for pure investment.
Pricing of Gold Investment Coins
The base parameter determining the value of gold coins in Russia is the Bank of Russia's release price for the "George the Victorious" coin. It is formed according to a clear scheme.
The Bank of Russia calculates the price as follows:
- The Bank of Russia takes the accounting price of 1 gram of gold for the current date, which is published daily on the Central Bank's website.
- It multiplies the obtained value by 7.78 grams (the weight of pure gold in the coin).
- It adds 7% to the final value.
The Bank of Russia's accounting price for 1 gram of gold, in turn, is formed based on two key parameters: the daily London gold fixing price, expressed in dollars per troy ounce (equal to 31.1035 grams), and the current ruble exchange rate.
Thus, the value of the 'Saint George the Victorious' gold coin is rigidly tied to current gold price quotes, expressed in rubles. This ensures transparency and predictability in pricing for investors.
The Concept of 'Premium to Exchange'
For easier market orientation, there is a parameter called 'premium to exchange.' It reflects how much the coin's price exceeds the current market value of the gold it contains. As a rule, for investment coins issued in large quantities, this indicator ranges from 0 to 10%.
Primary and Secondary Coin Markets
It is important to distinguish between the 'primary' and 'secondary' markets for gold coins. In the primary market, the Central Bank acts as a monopolist, as the state holds the exclusive right to issue money. Here, new coins are offered directly from the manufacturer.
The secondary market is formed by investors who sell previously acquired coins. Prices in the secondary market are usually slightly lower than in the primary market, as many prefer to purchase new investment gold coins instead of previously circulated ones.
There are differences in the premium to exchange depending on the coin's condition and year of issue. For instance, new 'Saint George' gold coins from the 2019-2020 issue are typically sold with a premium of about 7% over the metal's exchange price. Older 'Saint George the Victorious' coins trade with a premium ranging from 3% to 6%.
The most accessible category in the secondary market are coins with mechanical damage. Their price is usually very close to the metal's exchange value, with a premium of only 0-2%.
The Mint's Influence on Value: The History of 'Spots'
Another important factor influencing the pricing of the 'Saint George the Victorious' coin in Russia is the manufacturing mint. This is due to events that occurred between 2006 and 2014.
During those years, the Saint Petersburg Mint (SPMD) had a significant amount of manufacturing defects during coin minting. This defect manifested as various spots appearing on the coins – reddish and even black.
The cause of these spots was inclusions of foreign metal, which oxidized some time after minting. Gold itself, being an inert noble metal, does not enter into chemical reactions and does not oxidize. However, these impurities led to a change in appearance.
Since at least 90 out of every 100 coins minted by SPMD developed spots, coins from this mint began to be quoted at a discount relative to coins from the Moscow Mint (MMD). This discount persists to this day, regardless of the presence of spots on a specific SPMD coin.
To be fair, spots can also appear on MMD coins, but much less frequently—approximately 5-10 out of 100, which is a significantly better ratio. Currently, technological issues at SPMD have been resolved, and spots appear much less often, at roughly the same frequency as on MMD coins. Nevertheless, the historical discount for SPMD 'Saint George the Victorious' gold coins relative to MMD persists; as the saying goes, 'the sediment remains'.
Foreign Coins and Their Market Share
Alongside Russian precious metal coins, foreign investment and commemorative coins also circulate in the Russian market. However, their premium over the exchange price can vary more widely—from 0 to +15% of the metal's price. This depends on several factors, including their condition, mintage, and degree of exclusivity.
It's worth noting that the majority of coin turnover in the Russian market consists of the gold 'Saint George the Victorious'. It is estimated that this coin accounts for at least 80-85% of the total volume. The remaining 15-20% are made up of other Russian and various foreign coins.
- gold investment coins
- gold coin market
- Saint George the Victorious
- gold investments
- price of gold coins
- SPMD Mint
- MMD Mint
- premium to spot price
- physical gold
- gold bars with VAT
