By Audrey Clark
Putin’s Insatiable Appetite for Gold Fueled By These 3 Things by Audrey Clark
The Russian economy continues to plummet into the nadir of despair as low oil prices drive the ruble to record lows. Recently, Russian President Vladimir Putin has been buying gold in droves. What is behind this current unquenchable appetite for the yellow metal?
Political and Economic Turmoil
Bob Haberkorn, a senior market strategist at the prominent brokerage firm of RJ O’Brien, notes in an interview with NPR that Western sanctions, combined with the fall in oil prices, could be behind the turmoil in Russian stock and currency markets, which has prompted them to start purchasing gold bullion at record rates. Yahoo Finance reports that William Rhind, CEO of the World Gold Trust Services, has confirmed that Putin is diversifying Russian’s reserves by buying massive amounts of gold with revenue earned from Russian oil sales.
According to data complied by Bloomberg, when Russia defaulted on $40 billion worth of domestic debt in 1998, the cost of gold equaled the equivalent of 28 barrels of crude oil. That ratio fell to gold equaling 11.5 barrels of oil before President Putin first came to power. In 2005, after it touched 6.5, the President gave the command for the central bank to begin purchasing it at a rate of half of what where it currently resides. With the notable dip in gold prices, Russia is quickly becoming a world leader in bullion acquisitions with more than 55 metric tons of metal bought between July and October.
Dov Gertzulin's DG Capital is having a strong year. According to a copy of the hedge fund's letter to investors of its DG Value Partners Class C strategy, the fund is up 36.4% of the year to the end of June, after a performance of 12.8% in the second quarter. The Class C strategy is Read More
Putin’s Personal Interest in Gold
In addition to political reasons, Putin also has personal reasons for purchasing the gold, Al Jazeera America reports. To date, Western sanctions against his country have ended up targeting some of Putin’s closest associates, but have not yet targeted him. With a personal fortune valued at almost $40 billion and major stakes in the Russian oil and gas companies, Putin is speculated to be playing it safe by buying almost half a billion dollars worth of gold each month. His control over the oil and gas holdings is wholly dependent on his control over the Russian political system. If he is ousted, he stands to loose it all.
Among the many advantages of purchasing gold is that it is compact, very difficult to trace and is accepted worldwide, should the Russian leader need to fall back on this investment. There is some uncertainty as to how things will unfold surrounding the gold acquisitions. However, as precious metals prices advanced considerably the day after Christmas, the ruble continued to fall. As Scottsdale Bullion and Coin notes, there is speculation that Putin is making these purchases in an attempt to prepare for an impending economic war and to offset their tumbling currency.
Currencies in Competition
November 5, 2014, marked the date when, in an attack on U.S. currency, Russia introduced legislation to ban the circulation of the U.S. dollar. If the bill passes, Russian citizens with dollar bank accounts will be given a period of one year to exchange their holdings for rubles or certain other currencies. This factor is also significant among the political reasons for Putin’s massive gold purchases. Could a ban on the U.S. dollar and a large government store of gold help increase the ruble’s value? The World Gold Council’s recent report reveals that the gold purchases in general are often inspired by a desire to diversify holdings and create distance between a myriad of political tensions, including those that revolve around the U.S. dollar. However, a representative explained that this does not necessarily indicate a new trend for global currencies.
A MarketWatch report published by the World Gold Council states that Russia has more than doubled its reserves of gold over the last five years—buying an amount that triples the weight of the Statue of Liberty. However, the U.S. still ranks number one for gold holdings, directly above France.
Audrey Clark is a skilled freelance blogger covering a range of topics from careers and finance to travel and leisure, along with everything in-between. When not writing, she’s always on the lookout for her next adventure. Connect with Audrey on Twitter and Google+.