In hundreds or in bricks

Leading Russian commercial bank Uralsib has revived a strategy, accounts in gold, which aims to profit from mounting fear of a second crisis.

The price of gold has soared to record highs of more than $1,200 per ounce as investors flock to this traditional safe haven. At the end of May, UralSib Bank launched new accounts in which cash is automatically converted into precious metals, including gold and silver.

“A time deposit in precious metals is interesting to depositors who prefer to diversify their savings,” said Ilya Filatov, deputy chairman of the UralSib board, in a recent interview. "We made sure of this when we launched the product in Moscow, Ufa and St. Petersburg. That pilot product proved a success. A deposit in precious metals doesn’t depend on exchange fluctuations and protects funds from inflation."

The price of gold has been rising steadily, from a low of about $900 in July 2009 to reach a peak of $1210 in the first week of May. That is double its price of $650 before the crisis in 2007. Some analysts believe that the gold market is in danger of developing a bubble, but with both the euro and the dollar under threat from massive sovereign debt and high deficits in most of the world’s leading economies, no currency seems especially safe at the moment.

Likewise, the ruble remains vulnerable to changes in the oil price. During the worst of the crisis, oil fell from previous highs of over $140 per barrel to just under $40 in a matter of months, forcing the Russian government to spend over $200 billion in a controlled devaluation that wiped some 30 percent off the ruble’s value.

“Investors have rushed back into gold in a move that resembles the scramble we witnessed last autumn [when the crisis struck],” said Andrey Kryuchenkov, a commodities analyst with VTB Capital in Moscow. “Global risk aversion has triggered heavy losses across most commodity and equity markets. But euro-denominated gold reached a fresh all-time high as the panic struck.”

Standard & Poor’s depository receipts gold trust reported that gold holdings have surged to a new record high. As one of the world’s major producers, this flight to gold is benefiting Russia more than most. The country’s biggest producer, Polyus Gold, has been steadily increasing production, and recently expanded into Central Asia by purchasing Kazakhgold. Likewise, Petropavlovsk, Russia’s third largest gold mine, part-owned by British entrepreneur Peter Hambro, raised $50 million in February to fund further expansion.

“Gold is a counter cyclical commodity, so when things are most uncertain, the future of gold producers is the most secure,” said Peter Hambro, chairman of Petropavlovsk, one of Russia’s largest gold producers.

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