Why is Russia Buying Gold?

Jun 12
Gold - PPLI

Russia Places it’s Bets?

"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."                                                                                  Murray N. Rothbard

The Mckinsey institute recently said that Global debt had risen to an unsustainable $199 Trillion.        That’s $27,204 for every man woman and child alive today.

This is 40% more debt than there was in 2008 before the banking crisis started.

Nothing has structurally changed in the system that created the crisis and because of this the Mckinsey institute states there is “a very real risk of Wealth Taxes, Currency Wars, devaluations and Bail-Ins.”

Diversification is therefore important both in terms of asset diversification and where assets are owned. This is something that is fully understood by Nation States today.

Austria, Venezuela and Germany have chosen to repatriate there physical Gold. Whilst China, whose ravenous appetite for gold over the last few years is well documented, bought the entire world production of physical Gold in 2014.

Mr Putin it seems also understands the current political and systemic risks in a global economy where many nation states are printing money at unprecedented levels.

According to central bank data, Russia's gold reserves rose to 40.1 million troy ounces as of May 1 compared with 39.8 million ounces a month earlier. Russia increased its gold holdings for many months in a row last year, as shown by central bank figures and represented in the chart below:

So why is Russia engaging in this gold-buying spree when it likely has more immediately gratifying ways to spend its reserves?

The answer was given by Dmitry Tulin, who manages monetary policy at the central bank, was concise, sensible, and lucid.

"As you know we are increasing our gold holdings, although this comes with market risks," Tulin told lawmakers in the lower house of parliament.

"The price of it (gold) swings, but on the other hand it is a 100 percent guarantee from legal and political risks."

And with global political and systemic risks only set to rise, we expect Russian gold buying to continue indefinitely. As fewer and fewer people have confidence in paper as a store of value, the price of gold should continue to rise.

It makes sense for individuals to follow the example of Nation States and diversify into Precious metal holdings. This effectively turns you, the individual into your own central bank. A wealth preservation strategy that has been used effectively by the astute for the last 6000 years.

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."                    Antony Sutton.

Daniel Dungate