55 metric tons of gold were purchased by Russia in the third quarter of 2014. London’s World Gold Council reports that the purchase was made in an effort to reinforce its Central Bank.
Russia is preparing for a long economic war with the West by taking advantage of the lowest gold prices in four years. The possibility for a sustained depression in the Russian ruble raised enough eyebrows for Russia to strike while the market is cheap.
“Central banks do not accumulate gold for no reason; you hold gold as part of your reserves to guard against these worst case scenarios,” Nic Brown of the French investment firm Natixis told the International Business Times. “It would make sense that in a situation in which the Russians found their dollar reserves were no longer useful, for whatever reason, they would want to use alternatives, and the country has accumulated a large amount of gold in recent years.” Russia purchased twice the amount of gold as the second largest purchaser, Kazakhstan.
Russia’s Central Bank floated the value of the ruble this week so that the Bank wouldn’t have to stabilize with its dollar reserves. Between the fall of the ruble, United States and European Union sanctions, and the fall of oil prices, Russia’s biggest export, an economic crisis seems to be brewing for the Russian economy.
But this isn’t the first time Russia has purchased tons of gold. February of 2013, Putin felt the U.S. was endangering the global economy with its dollar monopoly and bought 570 metric tons of the precious metal. In 1998, Russia defaulted on $40 billion of domestic debt, bringing oil up 28 barrels to gold’s ounce. That ratio tumbled to 11.5 barrels by the time Putin took office, and in 2005, it dropped to 6.5, less than half of what it was in February of 2013.
Putin has always been defensive with his gold purchases, and the trend seems to be holding tough. Communist secrecy with Russia’s gold reserves continues to fuel speculation that party elites gathered large amounts of bullion that were spirited out of the country before the disintegration of the Soviet Union in 1991. Whether true or false, it is clear when economic hardships are knocking on Russia’s door, gold becomes a hot commodity.
