Vladimir Putin has done everything he can, whether consciously or not, to continue the upswing of gold over the last several years. No, we aren’t talking about the medal count at the recent South Korean Winter Olympics, which Russia did not attend as a national competitor. No, this is the real deal – and Putin is on an urgent push to own as much of it in reserve as possible. The world doesn’t seem concerned enough yet to even ask “why” – but we sure are.
The price of gold at the beginning of 2011 was at a record high of $1,400/oz, and experts felt that it wasn’t done yet, though no one could have predicted where it would go.
When gold prices hit an all-time high of $1,917.90/oz on August 21, 2011 in after-hours electronic trading, before pulling back to about $1,880, experts began to worry. As Matt Zeman, market strategist at Kingsview Financial in Chicago so aptly put it, “Gold could keep working its way higher, but it is starting to look a bit bubbly. The run-up reminds me of what silver did a few months ago. It climbed steadily week after week, sucked everyone in, and then the whole deck of cards came crashing down.”
Gold, considered a good hedge against inflation, was making no sense – inflation had only picked up 2.4% on an annual basis in the previous 10 years, but the price of gold had climbed over 21% a year during the same time period. Without a massive increase in inflation of 10% or higher, which would be deadly for the fragile global economy, the gold price had to start to come down. And fast.
Even the experts may not have realized how quickly that would come true – when less than 30 days later, during the week of September 21, 2011, the price of gold began to drop, and though it made several vain attempts to stabilize, a year later, it was $300 lower. A weak recovery to the end of 2012 saw it spike again to just under $1,800. Then, it started a free fall to its 2016 low of around $1,100.00/oz – losing over 40% of its value.
Enter Russia, very far stage left.
The election of Donald Trump, which many believe Russia had some hand in assisting with, helped the price of gold to drop through the floor to $1,127.80 in January 2017, the lowest point in 9 years – considered by most experts to tie directly to the President’s election and international markets welcoming the same.
And that was the time that Russia began to pounce on gold stocks around the world, “buying the dip” as it is called in commodities markets.
Since then, gold has performed much like it always does – as a safe haven in times of political or economic upheaval, having been the beneficiary of perils from North Korea (which one could argue Russia had a part to play in, having possibly supplied the Hermit Kingdom with some nuclear information) and Brexit (which again, some complain Russia played a part in the final outcome of).
The Bank of Russia has at first secretly and now completely openly been doubling its pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr. Putin’s 17 years in power, according to World Gold Council data.
In the second quarter of 2017 alone, Russia accounted for 38% of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves, while it continues to abstain from purchases of foreign currency for more than two years. While the global demand for global gold has fallen over the last two years, Russia is one of the only countries in the world to continue to bet on its lasting power.
But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US. For a country like Russia, which seems to have a habit of causing controversy all over the world, and particularly when it concerns the West, this rush to gold could be seeing as stocking up for the purpose of cashing in on an event that they themselves are creating.
Even the sanctions now being imposed by the West don’t hinder Russia – as no Western power has the ability to control the sale of gold to Putin. “Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.”
So let’s recap:
- Russia may have influenced the outcome of the US election, which brought the price of gold to the lowest in 9 years.
- Then, Russia started to “buy the dip” like crazy, doubling their normal purchases in gold, raising their stake to 17% of the world’s total reserves.
- Meanwhile, it is rumored they had a part to play in the North Korean crises by supplying the Kim government with nuclear information. They are also rumored to have been involved in the Brexit crisis rocking the United Kingdom. Both events have since spiked the price of gold again nearly 20% in the last 2 years.
- Possibly assuming that the West would eventually levy sanctions against them once they discovered how much they had interfered, Russia stayed out of foreign currency purchases as well for the last two years.
- They have continued to purchase gold in record quantities, knowing that no Western power has the ability to control or sanction their purchase of gold.
- They seemingly are one of the only countries besides China that is currently amassing greater amounts of gold than ever before. As Russia’s meddling in Western affairs seems to be bringing up the price of gold, only two countries have benefitted the most from that – Russia and China, who are the two largest gold owners in the world – and the West’s two greatest adversaries. So we have enriched our enemies without knowing it. The price of gold Friday, February 23 went above $1,330/oz.
To the casual observer, all of this could be just mere speculation, to be sure, and few have been putting these clues together. However, it looks to me like Russia has managed to win the coldest of the Cold Wars imaginable – the one for cold hard gold.
At the same time, Russia has been clearly preparing for some catastrophic event, yet unnamed, that they know is coming on the Earth:
We reported on October 5, 2016 that Britain’s The Independent newspaper had announced the day before that 40 million Russian civilians, 200,000 trained personnel and 50,000 vehicles had begun a 4-day “emergency evacuation” drill, ordered by Russian President Putin. The drill was conducted between October 4-7, supposedly mocking chemical, biological and nuclear attacks on the Russian homeland.
That same Calling Out article stated that Russia had also just completed 5,000 emergency bunkers in the city of Moscow – allowing a space for all 11 million residents safely in an underground shelter. No word yet as to why the enormous cost had been spent, nor why the West has done nothing similar.
Then, on August 21, 2017, the Independent again reported that the Russian military was about to embark on a massive real-military operation (which they do every four years at this time) in Belarus and western Russia. Russia has claimed that 13,000 would take part, but the real number is expected to be much higher
In a follow-up story by the New York Times on October 1, 2017, it was revealed that, in fact, the Independent prediction was spot-on: while Preliminary Pentagon and NATO assessments of the exercise, of the largest of its kind since the end of the Cold War, are classified and will take months to complete, the 13,000 troops engaged in a counterterrorism scenario in Belarus, the Russian exclave of Kaliningrad, the Baltic Sea region and around St. Petersburg were joined by tens of thousands of Russian troops in the Arctic and Far East, the Black Sea, close to Ukraine’s borders and in the Abkhazia region of Georgia. “In effect, these activities together constituted a single strategic exercise, involving the full spectrum of Russian and Belarusian military,” said Oana Lungescu, the NATO spokeswoman. That array included warships, submarines, fighter jets, helicopters, tanks and artillery, air defenses, anti-ship missiles, special forces, and short-range and nuclear-capable intercontinental ballistic missiles. Russian war games have previously preceded or provided cover for real military operations, including in Ukraine and Georgia, analysts said.
Coming back to the gold rush in Moscow – besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market. So they are stock piling gold like a baker stockpiles his own bread, preparing for the day when bread is suddenly necessary for everyone.
Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes (54 million ounces), or $73 billion, at the end of June, just behind China, and more than Turkey, India and Mexico combined, bringing its share to near 17% of the world’s stocks. For every $1 the cost of gold goes up, Russia makes over $50 million.
However, Russia and others still have a massive way to go before they overtake the United States in reserves in gold. Fort Knox is reported in November 2017 to be storing 4,582 tonnes (147.3 million oz. troy), with a book value of over $190 billion. In contrast, the GDP of the United States was $19.4 trillion as of April 2017.
If Russian buying continues at a similar pace, the World Gold Council said the full-year increase in 2017 “could closely match” 2015 and 2016. And the questions will continue as to what Russia is up to. Should they plan to go to war, or should there be a catastrophic natural disaster that at least their capital city is fully prepared for, the price of gold will undoubtedly rise dramatically, which will give them the real-world financing capital they need to weather any storm to come – whether they start it or not.
This rush for gold is not normal, it is not average, it was not expected – and it should cause no small amount of concern.