Is Russia Preparing To Introduce A Gold Standard?

Let us start with the facts. As per the chart below (courtesy of Goldchartsrus), it appears that Russia has accumulated more than 26 million ounces of physical gold in less than 10 years. In that same time period, there have been only 3 months in which the Russian gold reserves have declined, and the amounts in those months were truly insignificant.

Russia_Gold_Reserves_December2014

Russia is probably hoarding those massive amounts of gold as a protection against policies of Western governments.

Is Russia preparing to introduce a gold standard? That is very likely. Alasdair Macleod looks in this article (courtesy of Gold-Eagle) how the immediate consequence of such a move would almost certainly drive gold prices higher, if only because bullion banks would be forced to reconsider their short positions, in the knowledge that Russia would probably become a more aggressive buyer to build her reserves.

This move would be very good for Russia, if you understand Austrian economic theory, but would be judged reckless by mainstream macroeconomists. So it is obviously a prerequisite that President Vladimir Putin’s advisers would have to lean strongly towards sound money theories, if they are to advise such a move. Whether or not this is the case we do not know; the only thing we can do is look at the evidence and try to see things from Putin’s point of view.

Putin is an old-fashioned mercantilist, tolerating mild dissent to preserve the appearance of democracy, but ruthless with anyone who gets in his way. He runs Russia like a business, always looking for the commercial advantage in alliances. For this reason he decided some time ago that Russia’s future lay as a dominant partner with China in a Eurasian super-state, and so the Shanghai Cooperation Organisation (SCO) was founded in 2001. It’s a natural: Russia has the resources and China the manufacturing. The SCO will have half the world’s population under its control when India joins, and will heavily influence another billion Asians. Even Turkey, a NATO member and previously an applicant to join the EU, intends to join the SCO instead.

The upcoming powers in the Shanghai Cooperation Organisation, in particular China, seem to be like-minded when it comes to buying gold. China has been hoarding staggering amounts of gold for two years now.

The key motivation behind the accumulation of gold is undoubtedly linked to secure the country from the increasingly inevitable collapse of the global currency system. As Macleod points out, “this ultimately is the importance of gold for Russia, and the fact she has been acquiring it aggressively suggests Putin knows it. Putin is not like a western politician driven from one trivial crisis to another and wholly reliant on a central bank to handle money matters.”

Given that Putin is actively considering a move towards some sort of rouble-gold convertibility, it comes down to timing. Ideally, Russia would probably like to add further to its reserves, though we don’t know how much non-monetary gold Russia owns. It is quite possible Russia has additional gold to the 1,207 tonnes declared so far. If so a first step would be to declare the full position, which may trigger a similar declaration from China, there then being no point in China continuing to conceal Russia’s true position. The more gold Russia actually has, the more likely it is to want to announce its intentions sooner rather than later.

To a large extent timing will be down to NATO. If NATO escalates its involvement in Ukraine, with or without more financial sanctions, Russia might respond to stabilise the rouble by announcing a gold standard. The good news for us lesser mortals in the West is that at least a financial war is better than a nuclear war. Unless, that is, it becomes one.

Whether Russia will be the first country to re-introduce a gold standard since Nixon closed the gold window in 1971, or whether China will do so first, remains to be seen. But the gold demand trend is suggesting that a gold standard is underway. In any case, it makes perfect sense, so it seems to be a matter of time.

 

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