THE CURRENT GOLD POSITION OF THE USSR (S-769)

Created: 9/11/1962

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CIA HISTORICAL REVIEW PROGRAM

RELEASE AS8

U2

Chief, Economic Research Area

SUBJECT": Tbe Current Gold Position "of tbe USSR

Entitled, "The Soviet Union's Gold

rollcy and Gold Sale"

A review of"Tbe Soviet Union's Cold Policy

and Cold Sale" reveals some differences between their estimates of gold production, 6alcs, and reserves, and ours. The chiefcenters on the magnitude of Soviet gold reserves. esult, their concept of Soviet gold policy is somewhat at variance with ours.

Attachedummary of our views on the Soviet gold position0 to the present.

Attachment

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TflEOLD POSTTIOB OF THE USSR

I. Production of Gold In the USSR A. Lode and Placer Deposits

The principal deposits of gold ln the USSR arc found ln the Kolyma River basin in Kagadanskaya Oblast, In the Indigirka and Aldan River basins in Yskutskaya ASSR, ln the Lena River basin ln Krasnodar-skly Kray, in the Txansbaikal region, and ln the Urals. Although many other deposits have been exploited at different times, the above areas have been the principal resource base for the Soviet gold Industry. Intensive prospecting during the period has been successful mainly ln extending the boundaries of known gold-bearing areas; few deposits of uny long-term significance nave been discovered, and the USSR continues to the present time to rely for nost of its production of gold on tbe major deposits that have been producing gold for the lestears.

9 an intensive program was launched to raise production of gold from the million-ounce-per-year level ofs. Under the stimulus of large investments, production of gold was Increased rapidly In the following years toillion ounceBnd goals for succeeding years Indicated that production was cxpeoted to increase well beyond this level. Ita failure to do so probably

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reculted In part from tne purgea7 that removed A. P. Sercbrovekiy, Director of the Chief Directorate of the Gold and Platinum Industriea (Glavnoye Upravleniye Zoloto-Platinovoys veil as many of the best engineers and administrators, and in part from the failure of efforts toproduction in the Chief Directorate for Construction of the Far Horth (Glavnoye Upravleniye Stroitel'stva Dal'neyshcgoevel approximating that ofutput.

Soviet production of gold is believed to have declinedduring World War II, when men and equipment vere transferred to war Industries. Although no specific information is available on the extent of theecrease ofercent may be inferred from information on output in the Kolyma basin, on byproduct output from the copper industry, and on performance in industries closely associated vith Glavzoloto.

Production of gold In the USSR since World War II has not equaled prewar output, the reason probablyombination of factors. First, resources were limited immediately after the war, particularly resources of manpower and of capital, and those that

* Cul'otroy vas organised2 by the OGPU for the purpose ofthe Kolyma gold fields by the use of forced labor. Dai'stroy included Msgadsnskaya Oblast; Koryokskiy Okrug; and tbe territory of Yakutskaya ASSR encompassed by the lona aad the Indigirka Mining Directorates.

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wore uvol lable were needed to rebuild the basic industries. Later in the postwar period, when more manpower and capital were available, there was little Incentive to produce gold on the prewar scale. costs in the Soviet gold industry* were mounting while the price of gold in the Pree World remainedoreover, commodity prices ln the Free World were rising, thus decreasing the buying power of gold. Paced vith these conditions, the Soviet planners apparently decided that large Investments in the gold Industry were not warranted. Consequently, production Immediately after the war Increased very little, and lode and placer output declined ln later years aa the result of the closing down of some very high-cost enterprises.

During the prewar period,oercent of the Soviet output of gold was produced by Olavroloto. Glavtoloto exploited all of the major gold deposits in the USSB except for those in the territoryby Approximately half of the gold mined byota was obtained from lode or reef deposits and half from placer deposits.

* Rising costs were due primarily to the depletion of deposits. This situation is not surprising In view of tbe large quantities of gold that have been recovered during many years from the same gold-producing areas.Since* the world price of gold has remained close to the

US price5 an ounce.

s pointed out above, Dal'stroy Included MBgndnaskaya Oblast and the eastern part of Yakutakaya ASSR. Two gold-producing areas in the western port of Yakutskaya ASSRthe Deugdshur and the Yakutsk (Aldan) were not under the Jurisdiction of Dal'stroy but were subordinate to Glavzoloto.

Unlike Glavzoloto, Dal'otroy exploited placer depoaitB aljnost exclusively under extremely difficult conditions. Moat of the deposits vere in remote northern areas where the climate was unusually severe, where the working season was relatively short, and where living conditions were harsh. Since these factors made it difficult to attract labor to the area, resort was made to forced labor, and duringgreat numbers of political prisoners were settled ln labor camps in the gold mining areas. Although many, of the deposits were reported to be extremely rich in gold, the shortness of the working season and the primitive alnlng methods employed combined to limit production. It lsthat the annual output ever5 million ounces even in the most productive years of the major deposits under the control of Dal'stroy.* Mineral reserves, moreover, did not prove to be so great as bad been anticipated, and even before World War II, costs began to climb sharply as the more accessible bodies of ore were depleted. In postwar years, nigh costsajor factor lo curtailing production.

Inuring the nationwide industrial reorganization, Dxl'stroy ond Qlavzoloto vere abolished, and the administrativeof the gold-producing areas was transferred to the Bovnarkhozes-

* Dal'stroy ls believed to have reached its maximum prewar output ln lyUO,otal estimatedunces was produced.

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All but two of the former gold directorates of Dal'stroy were transferred to the Magadan sovnarkhor, The remaining two, the Indlgirka and the Yona Directorates, were transferred to the Yakutsk sovnarkhot. Of the gold-producing trusts formerlyto Glavzoloto, administrative control of the tvo that were located ln Yakutakaya ASSRthe Dzhugdzhur and the Yakutsk (Aldan)was assumed by the Yakutsk aovnarkhor. Administrative control of the rest, which are widely scattered throughout the USSR, has been token over by the appropriate local administrations. B. Byproduct Recovery

Copper, lead, and polymetollic ores in the USSR contain unusually large quantities of gold compared with similar ores in the US. Because there is an affinity between gold and copper, most of the gold present in polymetalllc ore remalna with the copper and is recovered from the slimes produced by the electrolytic copper refineries. While small quantities of gold sometimes occur as free gold and are recovered during the processing of the ores and scne gold Is recovered et lead smelters, the quantities are relatively Insignificant and add little to Soviet production.

Byproduct recoveryelatively unimportant source of gold before World War II because of the ssnll output of the copper and lead industries ln those years. Since World Hur II, however,

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output of copper has risen Btcadiiy, doubling1 the levelripling that level The amount of "byproduct gold recoveredelieved to have increased proportionately.

Copper ores probably will become an increasingly important source of Soviet gold In the future. ccording to the Seven Year Plan, output of copper will be nearly twice thatQ, and the amount of gold recovered from byproduct sources may be wellillion ounces. II- Domestic Consumption

Prioret consumption of gold by Industry and the arts in the USSR is believed to have been negligible for several reasons. First, the requirement of Soviet industry for gold during these years probably was relatively small because of concentration on the development of heavy industry and onof relatively unsophisticated industrial equipment. Second, the Stalin regime was preoccupied witharge gold hoard, thus mitigating against the release of large quantities of gold to the arts. Third, returns from industry and the arts wore large. Cold had been accumulated by institutions, particularly the Russian church, and by the population over centuries of tlse, and theseruitful source of gold during this period. For these

reasons, it Is believed that1 the level of consumption vas relatively low and probably did not exceed,ignificant amount, returns from industry, institutions, and the population.

et consumption of gold in the USSR probablyonsiderable magnitude. Reasons for believing so are as follows: (l) domestic sources of gold including Industry, institutions, and the population were exhausted durings and World War II, and returns from these sources durings probably dwindled to negligiblehe demand for gold by the industrial sector of the economy probably kept pace with or exceeded the rapid expansion of industry during this period, mainly because of the growing Importance of the Industries producing chemical and electricalhe strength of the Soviet economy relative to the Free World steadily Increased; andthe internal political climate after Stalin's death3 changed noticeably. The last two developments produced some change in the Stalinist position that large gold reserves were necessaryuffer against the capitalist world.

The annual net consumption of gold by the USSR during the decade ofa and01 la estimated0 ounces, and the total consumption for theseearsuncoe.

SECriET

Information on Soviet soles of gold Is very fragnentary. Die USSR has never reported sales of gold, and many of the notions of the Free World have been reluctant to release information onof gold from the Sino-Sovlet Bloc. Host of the figures, therefore, are estimates based on partial data.

During, sales of gold by the USSR arc estimated to have totaled aboutillion ounces, someillion ounces in excess of production. Inb, sales decreased several million ounces from the preceding decade in spiteery great increase in output of gold. Sales during and immediately following World War II were relatively small, amounting toillion ounces. Beginningowever, the USSR began selling large quantities of gold. Total soles ins amounted to aboutillion ounces and exceeded production during this period by overillion ounces. Sales0 and1 continuedigh level totaling moreillion ounces ln two years and exceeding production byillion ounces.

A. Pre-World War

The USSR0 had aboutillion ounces of gold that it inherited from the Tsarist government. In the prewar period,

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almostillion ounces vere produced domestically, and aboutillion ounces were collected from the population, acquired froa Spain and the Baltic countries, or came froa unknown sourcee. Total sales during this period amounted to about U6 million ounces, leaving aboutillion ounces as an indicated addition to reserves. Thus Soviet gold reserves are estimated to have Increasedittle lens thanillion ounces0 to almostillion ounces by the end

Daringe the USSB drew on its reo settle trade deficits, with the result that reserves were reduced to lessillion ounces Reserves did not regain the level05 and then only because an amount estimated6 million ounces was collected from the population and added to reserves. Rising production during thethe acquisition of3 million ounces of Spanish gold increased Sovietto aboutill Ion ounces by the outbreak of World War U.

SEfiBEL-

Million

Ounces

$

from Tsarist government

from the population

from Spain"

from Baltic countries

production

available gold

000

balance at the end of loAl

World War II and Post-World War

USSB presumably added to its gold reserves each year22 since sales of gold did not exceed9 million ounces were sold. In theyears, in spite of Imports of Chinese Communist and Horth Korean gold, total sales and consumption exceeded production and imports by more thanillion ounces. esult, gold reserves were reduced from on6 million ounces (USillion)3 to an6 million ounces3 billion) at the

* The current price ofn ounce, set by tbe US ln. is used for all years for purposes of comparison.he fate of the Spanish gold has never been firmly established, although presumptive evidence is very strong that about0 million of the total0 million held by the Spanish government at the outbreak of the civil war was shipped to the USSR.

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endl. The following tabulation summarises the acquisitions and dispositions of gold in the USSBnd shows the reserve balance at tJie endl:

Million Troy Ounces* US $

Reserves asanuary

Domestic

Receipts from Communist China

Total available

Loans to Hungary and

Reserve balance at the end of

* Rounded to the nearest ten thousand.

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Original document.

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