Putin's war on Ukraine sent Russians scrambling to buy gold and stash their savings, fueling a fivefold surge in demand

• With euros and dollars in short supply, Russians are saving their money in gold.
• Demand for gold bars and coins in Russia jumped nearly fivefold last year from 2021.

Moscow's war on Ukraine sent Russians lining up to buy gold bars and coins as they sought a safe haven for their savings, causing the country's appetite for the metal to almost quintuple.

The bullion rush was spurred by President Vladimir Putin's move to remove the 20% VAT on gold bars, as well as a central bank decision to restrict foreign-currency transactions. However, the country's half-baked framework for retail investment in the yellow metal may make the trend trickier than it seems, the Financial Times reported.

"Not everyone understands they cannot keep bars in a shoebox," financial advisor Natalia Smirnova told the FT. Even a scratch can put a dent in their value, she said.

Russian demand for gold bars and coins rose nearly fivefold in 2022 from the previous year, data from the World Gold Council show.

At one point, Sberbank, a large Moscow-based state-owned bank, cautioned clients about a possible shortage of smaller-size gold bars, the preferred size for many buyers, according to the FT. Even the central bank was forced to step in to cool the market, by suspending its own gold purchases for a fortnight in March.

"Private citizens are looking for a way to save money, and euros and dollars are in short supply, so the popularity of gold has surged," Vitaly Nesis, chief executive of Polymetal, an Anglo-Russian gold producer, told the FT.

"As long as we experience geopolitical instability, the demand for gold may be significant," Nesis said.

The rush for gold is also tied to a larger push from countries trying to move away from the U.S. dollar's dominance of international trade and capital flows. The yellow metal's price surged about 20% from its November lows through January, thanks in part to demand from China and Russia, Bernard Dahdah, a commodities analyst at Natixis, told the FT.

"There is a lot of effort by Russia and China to make the dollar [less influential] — to stop it from being the petrodollar," he said.

But Russia isn't the biggest gold buyer as its demand made up only 2% of the global total last year, World Gold Council data show. China took the lead at 19%, followed by Germany and India.