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Expert's comment: how gold prices affect Uzbekistan

There is no point in relying on raw materials exports, it is necessary to develop modern industries with high added value, says international expert Doniyor Islamov.

Chief Executive Officer of RB Asia international investment advisory and research consulting firm.

For the ninth week in a row, the price of gold on world exchanges has been growing and breaking new and new historical records, reaching $ 2,069 per ounce in August 2020.

This year, the price of gold has risen by 35%. Several factors contribute to this growth, let's look at the most important ones.

Gold prices in the international commodity markets, USD per toz

Sources: RB ASIA calculations based on data

Firstly, the uncertainty associated with the global economy in connection with the pandemic, as well as expectations of a possible global economic crisis. As we know, gold is a safe haven for investors in times of economic turbulence.

Secondly, the world's leading central banks - the Federal Reserve System, the European Central Bank, the People's Bank of China - are pursuing a policy of easing monetary policy, in other words, they print money, including through lowering the policy rates and "aid programs", which reduces the cost of these currencies.

For example, in the United States in March 2020, a $ 2.2 trillion "aid program" (about 10% of GDP) was approved, while today another "aid program" is being discussed.

Third, there is also a reason for the supply of gold - the lower the rates, the higher the price of gold.

Sources:, World Bank

Due to the pandemic, there are production disruptions in mines in South Africa and South America. Also, refineries in Switzerland (one third of the global volume), Turkey and Singapore have either suspended their work or are not working at full capacity.

Depending on the situation in the global economy, according to a number of analysts, the price of gold may rise to $ 3000 in the horizon from 12 to 18 months, the more conservative of them predict growth to $ 2300.

How it affects Uzbekistan

According to the Statistics Committee, Uzbekistan exported $ 2,124 million in gold in the first half of 2020, which amounted to 33.8% of exports. For comparison, in the same period of 2019, the share of gold in exports was 25.8%.

If we consider the structure of exports as a whole, then the largest drop in absolute terms occurred in gas exports, which fell from $ 966 million to $ 234 million due to a decrease in demand for energy resources in the world.

According to the World Gold Council, Uzbekistan is among the top 15 countries in terms of gold and foreign exchange reserves, which amount to 337 tons of gold at the end of 2019, while this figure has increased by more than 50% since 2013.

The growth of reserves in gold occurred due to the fact that its production has recently reached about 100 tons per year, while the level of exports is about 70 - 80 tons.

Uzbekistan gold production

Sources: RB ASIA calculations based on data

If we talk about the volume of gold production in Uzbekistan, the graph shows that in recent years, production volumes have not increased significantly.

At the same time, the reforms and capital investments that are being carried out in the Navoi Mining and Metallurgical Combine (NMMC) and the Almalyk Mining and Metallurgical Combine (AGMK) may lead to an increase in production, since the total explored amounts to more than 2500 tons, and together with probable reserves (by categories C1 and C2) - 5990 tons.

For example, the current market conditions are very favorable for accelerating the IPO of NMMC shares on the international markets, since at the current historical maximum prices for gold, the value of the plant will also be highly valued.

"There is no point in relying on raw materials exports"

In general, it can be said unequivocally that the rise in the price of gold has a beneficial effect on the economy of Uzbekistan, especially in a crisis situation when many other sources of exports are falling and economic growth is slowing down.

However, in the medium and long term, there is no point in relying on raw material exports, but it is necessary to modern industry with high added value by investing in R&D, which can be competitive in foreign markets.

This is especially evident in the examples of the economies of Russia and Kazakhstan, which did not rebuild their economies sufficiently and enjoyed high oil and gas prices.

But when prices went down in 2014 from above $ 100 per barrel to below $ 30 in 2016, the economies of the countries went into depression and national currencies fell by more than 2 times.

As for citizens who want to protect their savings from falling currency values, I would recommend converting part of their savings into gold, for example, through the purchase of commemorative gold coins issued by the Central Bank. The cost of these coins has increased since the beginning of 2020 by 47% from 14.6 to 21.5 million sums.

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