Earlier this year, CNBC ran a sequence of articles where they raised a number of valid and important questions as to why Russia wants more gold. (source)
The Central bank of Russia has announced plans to increase its reserve level from $300 billion to $500 billion. Now how Russia plans to do this is unclear, however lets look at three major facts for a moment that have negatively impacted on the Russian economy:
- Russia has for some time been trying to stabilise the value of the Russian currency, the ruble, by selling a mix of currencies including the US dollar.
- Its war with the Ukraine has brought about sanctions that has put them under economic strain
- As the world’s leading energy supplier, the fall in the price of oil has impacted on Russia greatly.
These factors, along with others, have contributed to the economy of Russia to actually contract by 1.29% and this is a result of 12 months of continual contraction.
graph courtesy of http://www.tradingeconomics.com/russia/gdp-growth
Now when you consider that Russia is the largest country in the world and the fifth largest economy, along with being the world largest producer of oil (no it’s not Saudi Arabia, there output is only 13% compared to Russia’s 14% (figures courtesy of Wikipedia)) along with gas, you can see why having a stable economy is vital.
So how are they going to do it?
Well one of the fastest and most common ways to bolster an economy is through the purchase of gold. In an article on CNBC, they stated:
“Rumors last week that Russia was on the verge of selling its gold reserves were quashed with the news on Friday that it has continued to add to its holdings. However, John Butler, chief investment officer at Atom Capital, and Alasdair MacLeod, the head of research at online bullion exchange GoldMoney Foundation, believe that Russian President Vladimir Putin could bring the country onto some sort of “gold standard” to try to shore up its economy. “
It is no secret that Russia does have an interest to distance itself from other currencies that are inflating in value. Putin wants to base the Russian economy on sound investments and the best way to do that is, through gold.
What evidence is there to suggest that?
Russia increased its holding of gold in December last year to just over 38 million ounces, an increase of over 1 million ounces from the previous month (source) and it continues to do so each month. Although the country is a long way off from having a currency that is backed completely by gold, it is moving in the right direction