SOVIET GOLD POLICY (S-09110)

Created: 12/16/1975

OCR scan of the original document, errors are possible

1 I

CIA HISTORICAL REVIEW PROGRAM RELEASE AS SANITIZED

MEMORANDUM FOR:

The attached paper is the background material on Soviet gold policy for an oral briefing onecember of Deputy Assistant Secretary Slighton at Treasury. emorandum for the Record of the briefing is also attached.

Acting Chief

cemberDATtT^

Attachments As stated

|Q| tl'lAta ron-

p

Soviet Gold Polic*

The USSR is expanding gold production facilities and will probably increase output byn theears. Soviet output is now in excessons.

Soviet production costs have declined. Production has stagnated in the more marginal areas in the Northeast1 ln Muruntau where production costs are relatively

Concomitant with the declineiin production costs, high free market gold prices have made Soviet gold an attractive alternative and/or supplement to Western credits to finance hard currency deficits.

The Soviets have become more sophisticated in handling sales of gold. They sell more when prices are rising and less when they falldepending on the severity of hard-currency deficits.

The Soviets are apparently willing to part with their gold at the right price, but will probably try toeserve at about its present level. Sales out of current output (net) could thus increase fromons5 to

Production

The Soviet leadership has consistentlyolicy of expanding gold production. Under conditions of "capitalisttalin believed that he had tooard of gold to take care of emergencies such as crop failures, economic blockades, and the like, lie reasoned that the capitalists would buy his gold even if they did not buy other Soviet export commodities. The Soviets managed to add to their stockpile in spite of the need to sell goldumber of occasions to cover deficits. 5 iteak ofons.

The postwar leadership has maintained Stalin's policy of expanding gold production. Unlike Stalin, it has neverolicy of producing gold at any cost, although production in the past has been pushed in areas which would be considered uneconomic in other gold producing countries."

* Current South African exploitation of marginal deposits may be an exception.

In any event, until the appearance of the free gold market

I? was Producedost significantly higher thaner ounce the Soviets got paid for it.

Early inoscow decided to explore and develoo gold reserves in regions where climate and terrain are more favorable than in the traditional gold fields of the Discoveries of new deposits in Central Asia and the

an SR WGr^ made abouC that cijne and Moscow decided to

S and Processing facilities for theirbenefits of that decision are now being realized"argest gold mine in the Muruntau Mountainshas come on stream. Costs, at the newmuch lower than those at old producing sites. policy is to promote further large increasesof gold. Construction of additionalMuruntauew plant at Zod in the Armenian SSRadvanced. The new gold producing facilities haveou*Put substantially. Production has

risenons0 to anons this year. By comparison4 South Africaons Within thencrease in Soviet gold output will be possible because of the new facilities.

Sales

Khrushchev, enjoying the comfortable reserve position bequeathed by Stalin, regarded goldormal export commodity and increased sales to finance imports of Western equipment. In the, the Soviets were alsof gold to buy grain. In theeserves fellhousand tonsevel ofons, causing considerable concern araono the

hrr.?ecision toarge investments in gold production facilities and to rebuild the gold stockpile despite the fact that it cost the Sovietsmore to produce the goldn ounce, indicated that the leadership's devotion to gold was not essentially different from Stalin's.

Soviet gold virtually disappeared from international bullion markets5 Hard currency deficits were financed mainly by Western credits. By the end1 the Soviet gold stockpile had grown to roughly tons. But the poor grain harvest2 brought Soviet gold backi inarket' wi,th themarket and risingeve5'jlhe Sovifitsetter return on their sales than they had in the past.

hiah^ ^Jif?%Soviet reserve, increasing production and

for goId have 9iven tnelexibility

in gold sales policy they never had in earlier

S Soviet abiliti- Attractn^Credft in the West" Even with

fill lara^ nd CUt baClC

wJre'tendlnnhen prices il 1 WaCd' indicate that Soviet flexibility has^hard currency trade deficit Prices inf decreasing prices. Moscow was obviously aware of the impact of its

scow suSliSd more ?han

X2GaCh^nths (compared

isiss :nhetogSidTicee?European markets and minimi-

e expect "oscow to continue tothecourse' ls ^ware of the restrictions

<-iie sale tons of gold this year, but weould have sold more if the marketed allowed.

t0 be seekin^ alternate methods of

mark

on

Helling directly to buyers outside of tho established market. Aside from the reported Middle East Kale, the Soviets bypassed the European markets and sold gold directlyS importer for the purpose of supplying small amounts of gold to what was hoped to haverowing market of small, individual investors. The us market fell far short of what was anticipated, however, and0 worth of Soviet gold was imported into the United States during the first eight months of the year.

There are also reports that Moscow intends to mint gold coins and market them in the United States, Canada, and Western Europe. If the coin sales prove successful, the USSR would also produce commemorative coins and other memorabilia for0 Olympics. The coin in question is theuble "chorvonets" {nominallyt the present ruble-dollar exchangeut it would be priced according tounce gold content. The chervonets will probably sell forr less under current market conditions and therefore be attractive to the small investor. Test marketing reportedly is to begin this year in the United States, where Moscow hopes to be able to sell as manyf these coins piece, thoseould earn Moscowillion.

USSR: Production and Aliocacj.

tons

Production Consumption Exports Reserves

1

Hi ' '

J965

19

40 .

Al

42

<3

9

218

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MEMORANDUM FOR THE RECORD

SUBJECT: Briefing on Soviet Gold Policy Cor

Robert L. Slighton, Deputy Assistant Secretary for Research and Planning, Office of the Assistant Secretary for International Affairs, Department of Treasury

Onet with Secretary Slighton in his office at the Treasury Department to jdiscuss Soviet gold policy. Thomasonsultant to Assistant Secretary for International Affairs Charles A. Cooperand apparently Treasury's specialist on gold and precious metalsalso was present at the briefing, which lasted two hours and fifteen minutes. Secretary Slighton immediately took the initiative, asking specific questions about Soviet policy on gold production, sales, and reserves. The conversation progressed rapidly, but in an orderly fashion andery relaxed atmosphere, so that by the end of the meeting all of the conclusions of the prepared briefing paper had been covered although there was no formal presentation as such.

Secretary Slighton indicated that the US has no clear policy toward gold sales and before one can be formulated it

was necessary to know what Soviet policies were toward production and sales of gold in both the short-run and the long-run. Regarding production. Treasury is interested in the grade of Soviet ores being worked, the typo oi mining activityeep mines, strip mines,verage production costs, and if there are any indications that the Soviet production is responsive to world gold prices, lie asked specifically if there was any evidence of an early stage of development of new ore bodies not currently being exploited, and how long it takes to move.from initial surveys to putting an operation on stream, as for example at Maurantau or Zod.

sales. Treasury is interested in themechanism, from the producer to the foreignSecretary was curious as to how the gold producersin business when Soviet gold was beinq sold below cost on

-seem""

the world market. [Io appeared satisfied with my explanation that such losses were covered by the Statu budget and that, within reason, such losses did not affect the decision to continue production at such facilities. He recognized, however, that Soviet appreciation of high costs has led to the development of gold fields in Kazakhstan and Armenia. Regarding sales on foreign markets, the Secretary was impressed with the graphic showing Soviet responsiveness to price changes duringnd requested that the chart be expanded to include data since the beginning of the two-tier system. He also requested historical data which shows the importance of gold sales to the balance of payments. aid that we couldard currency balance of payments statement for the9 to date, as well an the earlier series on gold sales. He alsorojection of Soviet hard currency trade for the next five years to soo what the requirements might be for future Soviet gold sales. The Secretary also wants to know the exact nature of the Soviet sales arrangement with the Swiss banks. For example, do the Swiss banks buy on thoir own account or do they job for the Soviets? He suggested that perhaps wg can get DDo to get this information as well as information on production for us.

At the end of the meeting, the Secretaryitch for closer working relations between OER analysts and analysts at Treasury. aid that we would welcome the opportunity to meet and exchange ideas with Treasury analysts. He said that he wou.ld provide names of the appropriate Treasury analysts so that contact can be initiated. henitch for the Bank tor International Settlements quarterly report on gold, which Treasury gets via the Federal Reserve Bank. The report contains information on Soviet, gold exportn to the West and presently is available to us only through Treasury channels. Our receipt of this document over the past year has been irregular, however, The Secretary said that he would look into the matter.

In addition to the two sets of wtaterials on gold sales and balance ofropose that we also provide the Secretaryopy rospects for .Hard Currency Trade, R) ,, whichas considerable merit when addcessinq future trade deficits and how they can be covered, and the more recent. Soviets Face Massive Trade Deficit5 t,. The Secretary also expressed interest in Soviet Eurodollar operations (he apparently was not aware of their magnitude). Therefore,

I propose that we also sendopy of our recent research

Original document.

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