Gold Price In Ukraine 75% Higher In 2014

As we have repeated over and over again, gold should primarily act as an insurance policy which protects your purchasing power during a currency crisis. And despite the fact that most economic pundits want us to believe there is an economic recovery, the truth of the matter is that the recovery is very weak; the economy remains fragile. Apart from that, a global currency crisis is playing out and it will probably hit most of the currencies in the years ahead.

Recently, in the heat of the emerging market crisis, we wrote Gold Price Exploding In Emerging Markets. The charts in the article show the explosive price action in local currencies of the emerging markets that were hit hardest. That’s the insurance policy in action.

Another “real time” example of the inverse correlation between currency and gold is Ukraine. Their currency, the Hryvnia, has been in free fall in 2014. It is the world’s worst performing currency this year.

The following chart shows how the Hryvnia has been devalued significantly against the USD in 2008/2009, from 0.22 to 0.12. It remained rather stable until 2014, as the currency collapsed from 0.12 to 0.08 since the start of this year. At the same time, the price of gold in Hryvnia went from 4,000 to 8,000 in 2008/2009.  Since the beginning of this year, Hryvnian gold exploded from 10,000 to 17,444 last week.

One could easily observe that this is an example of runaway inflation, even hyperinflation. In such a situation, gold is known to hold its value. It proves that people do not hold gold to have more value in terms of a currency. Rather, one holds gold as monetary insurance to preserve its purchasing power when things turn out bad.

Those owning gold in Ukraine can make use of it in the coming months to buy the same amount of products like food and fuel as before. Some could use this crisis as an opportunity and buy land or businesses to generate future income.


The irony in this story is that Ukraine had doubled their official gold reserves, from 20 tonnes to 40 tonnes, over the course of the past decade. With the recent tensions between Russia and Ukraine, the United States stepped in and “rescued” the gold reserves of Ukraine. Some weeks ago, pro Russian newspaper, reported that orders were given by one of the “new leaders” of Ukraine to transport all the gold reserves of the Ukraine to the United States. Or, as Zerohedge observes rightfully, “the best source of validation, and refutation, of this story would be the people of Ukraine, alas since not even Americans are entitled to observe how much gold is in Fort Knox, somehow we doubt that the Central Bank of Ukraine will be any more lenient in providing visiting and viewing hours for its much more compact gold inventory. Especially since the local population is far more busy celebrating its “liberation” by western powers.”


Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing