What’s Behind Putin’s Insatiable Quest for Gold: Sovereignty, Diversification or Something Else?

The value of the ruble is drastically falling. Radio Free Europe Radio Liberty reported slight gains in ruble valuation in mid-December, but the ruble lost more than 50% of its value before the slight recovery. Sanctions from the West over the interference in Ukraine and dramatic changes in global oil pricing and availability in 2014 continue to create financial havoc for Russian President Vladimir Putin and his citizenry. Market volatility and what the Russian Finance Ministry claims is an extreme undervaluation of the ruble have prompted the government to sell excess currency to mitigate financial risks. Yet, even in a tumultuous financial environment, Putin’s quest for gold seems to be unquenchable.

A Question of Sovereignty

Remaining sovereign and influential in the geopolitical ecosphere is difficult under financially stressed conditions in Russia, especially as the country relies on oil and gas for 45% of their national economy. MarketWatch speculates that the Russian leader is acquiring a massive build up of gold to shore up a diminished public perception of national sovereignty and global influence.

Vox explains that oil prices have been dropping due to weakened economies across the world and increased production in the Middle East and North Africa. OPEC refusal to curtail production and the United States’ continued fracking activity has further driven significant production gains and increased profitability for American petroleum companies. Crude oil prices spiraled from $105(USD) to $53(USD) in the last six months of 2014, Heritage Foundation’s chief economist Stephen Moore reported in an article for Fox News. The current climate in the global market weakens national influence and dramatically alters Putin’s ability to dominate countries dependent on Russia’s natural fossil fuel resources used for heating and energy.

While Saudi investors can afford to absorb potential losses, Russia’s First Deputy Governor Ksenia Yudaeva told Bloomberg the Russian economy “isn’t in the best condition,” based in part on economists’ projections that Russia could face a 4.5% decline in GDP in 2015 if oil prices remain at or below $60(USD).

Diversification and Alliance Building

In the face of challenging economic conditions and escalating geopolitical tensions, diversification assumes greater importance for stability and sovereignty. Investing heavily in gold while prices are low may offset the extreme losses over time and minimize financial vulnerability, giving Putin confidence to pursue alliances with China and other non-Western nations. Precious metals captured the Russian leader’s attention long before the march to annex Crimea; however, recent months have seen a marked increase in his appetite.

Is a Global Economic Battle Unavoidable?

SBCGold.com suggests that the combination of the lowest gold prices in four years and expectations for an imminent economic battle between the Kremlin and the West could set the stage for a thriving yellow metal market. Some analysts have gone a step further, suggesting that Putin’s massive accumulation of gold is part of a greater strategy in preparation for not only an economic battle, but also a physical, boots-on-the-ground war. To these speculators, it seems very likely that reclaiming Ukrainian land has been on Putin’s radar for many years and that he waited until timing and environment were optimal for a successful annexation.

Spinning “black gold” into bullion in advance of blatant acts of aggression could be seen as a move to strengthen his position among new allies and shift asset valuation away from US dollar market influences into more manageable investment vehicles. While private investors remain hesitant, Putin continues to diversify assets, and strengthen his national portfolio by accumulating vast stores of gold, more than 1,100 metric tons in the past decade.

Whether his insatiable appetite for gold is a desire to strengthen national sovereignty, flex his muscles in preparation for an economic battle in the global theater or remove the ruble from scrutiny against the U.S. dollar, two things are crystal clear: Strength comes from diversity, and Putin seems to be focused on converting his limited cash reserves into gold.


Author Bio: 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+.


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