Gold bullion from Russia is pouring into Hong Kong. Russia is a global gold producer that competes with China for No. 1 in the world. But Russian gold bullion was pushed out of the London and New York markets, the centers of global gold transactions, after the United States and the United Kingdom began rolling out a tight web of economic sanctions aimed at Russia. In response, Russia this year developed the Asian market without import restrictions, especially Hong Kong, as a new export route for gold. As Russian gold bullion has flowed in en masse, Hong Kong, which had lagged behind London, New York and Dubai in global gold transactions, has also emerged as a new hub in the global gold trading market.
The Financial Times (FT) reported on the 6th (local time), citing Hong Kong government trade statistics, that Russian gold imported by Hong Kong through July this year is close to 100 tons, the largest amount on record. The amount of Russian gold Hong Kong imported over seven months is comparable to the 104 tons of gold currently held by the Bank of Korea. It nearly tripled from the same period last year. Converted at the spot price on the 3rd ($4,491 per ounce), it amounts to $14.4 billion (about 19.4 trillion won).
The London Bullion Market Association (LBMA) removed six Russian gold refineries from the Good Delivery list in March 2022, the month after Russia invaded Ukraine. Good Delivery is the purity and weight standard recognized by the London gold market. Gold bullion removed from this list is effectively unable to be transacted on the London and New York exchanges. Subsequently, at the Group of Seven (G7) summit held in Elmau, Germany, in June of the same year, the United States, the United Kingdom, Canada, Japan and key European Union (EU) countries agreed on strong sanctions to completely ban imports of Russian gold.
Dubai in the United Arab Emirates (UAE) was the first to accept Russian gold that had nowhere to go. According to Reuters' tally, the UAE bought 76 tons of Russian gold in the year or so after February 2022. That is nearly four times the 20 tons imported by Hong Kong during the same period. However, as the United States and the EU moved to a tough secondary boycott that sanctions not only Russia but also countries that transacted with Russia, Dubai authorities significantly tightened their own gold transaction regulations.
On top of that, as logistics disruptions in the Middle East worsened this year due to the U.S. and Israel's invasion of Iran, Hong Kong completely took over from the UAE the role of clearing Russian gold. Debajit Saha, an analyst at London Stock Exchange Group (LSEG), said, "Since the outbreak of the Ukraine conflict, London has closed its doors to Russian gold, and Russian producers are increasingly redirecting exports to the Asian market."
There are no sanctions in Hong Kong related to imports of Russian gold. From right after Russia invaded Ukraine in early 2022 to the present, Hong Kong-based institutions have purchased HK$276 billion worth of Russian gold ($35 billion; about 47.1 trillion won). Vita Spivak, an adviser at U.K. geopolitical consultancy Gatehouse, said the surge in Hong Kong's imports of Russian gold is "the result of Russia-China economic friendship, where Russia sells resources and China repays with economic support." This is interpreted to mean that Russia's wartime economy, which has staked its fate on exporting natural resources such as crude oil and natural gas, is reflected in the global gold market.
Most of the Russian gold imported by Hong Kong goes on to mainland China. The Chinese government places a quota on gold import volumes and allocates limited amounts to certain banks. Because of this, investors in the Chinese sphere buy gold bullion in Hong Kong, where there are no import restrictions, then stockpile it there and bring it in little by little. In addition, the People's Bank of China (PBOC) sharply increased gold purchases to diversify foreign exchange reserves against the dominance of the U.S. dollar, voraciously absorbing demand for Russian gold. It turned out that more than one-fifth of the gold China imported last year passed through Hong Kong.
Hong Kong is competing for a new hub position in the global gold transaction market with Dubai, Singapore and others. The Hong Kong government said its current gold storage is around 150 tons, but it will increase storage capacity to more than 2,000 tons within three years. Recently, as central banks in countries including France and the Netherlands began to retrieve gold they had deposited in vaults in London and New York citing geopolitical crises, Hong Kong moved to actively attract these holdings to its own vaults.
Jeremy Mark, a senior fellow at the Atlantic Council, a U.S. think tank, said, "Hong Kong has been a center for gold transactions for generations, and that infrastructure can now be leveraged for China's benefit," adding, "This aligns with ongoing efforts to make Hong Kong an Asian financial center with Chinese characteristics."
However, as the volume of Russian gold transactions passing through Hong Kong has surged out of control, the gaze of international financial markets on Hong Kong is growing increasingly sharp. When gold bullion is melted down and recast, its country-of-origin marking disappears. Major Western banks and refiners are seriously concerned that in the Hong Kong market, sanctioned Russian gold and clean gold from non-sanctioned countries could be indiscriminately mixed without tags. In 2024, the U.S. Treasury already took a hard line by adding several Hong Kong-based corporations to the sanctions list on suspicion of involvement in a large gold money-laundering network linked to Russia.
Experts noted that the more Russian gold piles up in Hong Kong, the faster the risk rises that Western banks or gold refineries transacting with Hong Kong could run afoul of sanctions provisions. Sanctions-focused law firm Reed Smith told the FT, "Western banks face a real risk of unintentional exposure to unintended sanctions without realizing it," adding, "If a sanctioned producer is in the transaction chain, you will be held responsible even if you transacted with the producer indirectly." This is interpreted to mean that passing through Hong Kong, a legal intermediate stop, does not free Western financial institutions from joint-liability risks for violating economic sanctions on Russia.