Image: “Vladimir Putin at APEC Summit in China 19-21 October 2001-12”
by Presidential Press and Information Office is licensed under CC BY 4.0.
There are more than 16,000 sanctions imposed against Russia. Yet the Russian economy and war machine grew by 3.6 per cent in 2023 and is projected to grow another 2.6 per cent in 2024.
Nearly six per cent of Russia’s gross domestic product goes towards military spending. At a time when Ukrainian President Volodymyr Zelenskyy is scrambling to acquire arms, funds and recruits, Vladimir Putin seems confident in his ambitions for the future.
How have 16,000 strategic sanctions issued by some of the most powerful economies in the world failed to derail Putin?
As I recently watched the news break on CBC about Russia’s robust economy, an advertisement from the World Gold Council popped onto the screen. And there was the answer, hiding in plain sight: Gold.
The Untouched Gold Market
Sanctions against Russia needed to be strategic, targeting the environment it operates in.
Economic sanctions targeted shipping and trade into Russia, but the gold market is a massive environment left largely untouched. After Russia invaded Ukraine two years ago, the United Kingdom, a major gold broker with one of the world’s largest gold reserves, cut all Russian imports of gold into the U.K.
According to the World Gold Council, Russia is now the second largest producer of gold at 324.7 tonnes in 2023, behind China at 374 million tonnes. Russia is expected to increase production of gold by four per cent a year until 2026.
Since 2013, Russia has been preparing for western sanctions and managed to isolate its economy from transactions requiring American dollars.
The Gold Standard
In early 2022, Russia pegged its currency, the ruble, to gold, and 5,000 rubles will now buy an ounce of pure gold. The plan was to shift the currency away from a pegged value and into the gold standard itself so the ruble would become a credible gold substitute at a fixed rate.
Usually the rationale for holding onto gold reserves is to use them to settle foreign transactions at home and abroad. Gold holders can trade it on one of several bullion exchanges; it can be swapped for currencies to settle transactions and then swapped back into bullion.
Usually countries want gold as a safety backing to insulate against broader global financial shocks. Many central banks are purchasing gold at breakneck pace, with about 1,073 tonnes purchased in 2022. A single tonne is about US$65 million, which means $110.6 billion in gold went into central banks globally in 2023.
The Influence of Consumers
Here’s where average citizens come in, and how they can help determine what’s to come.
Right now, if you’re a Costco member, you can order an ounce of Swiss gold for CA$3,045 (limit two per member, and no refunds). This is not a speculative investment. Physical gold will not quadruple in value by Christmas.
Instead, buying gold is a guard against inflation and currency devaluation in times of uncertainty. It’s the doomsday currency, which is why the World Gold Council advertises gold on cable news networks in exactly that vein.
If North American consumers, central banks and investors are panicked enough to buy gold en masse, the price will go up, and Putin’s plan works.
In the last quarter of 2023, American consumers purchased more than US$100 million in gold bars through Costco alone.
Tactics to Counteract Putin’s Strategy
To thwart Putin’s plan, the lustre needs to be removed from gold. Increasing gold supply could lower the price. Australia, Canada and the U.S. have important roles to play as leading gold producers.
Rising interest rates also tend to lower gold prices. A mass sell-off of government holdings in gold could also cause a tailspin for the ruble, but likely for the U.S. and Canadian dollars as well.
No single policy can thwart Putin’s goals — it requires disrupting the supply of gold beyond Russia, and that might well mean involving the U.A.E.
But with 16,000 sanctions on the books against Russia, one more smart sanction against the Emirates might be the golden egg Zelenskyy needs right now.
Robert Huish, Associate Professor in International Development Studies, Dalhousie University
This article is republished from The Conversation under a Creative Commons license.
Image: “Vladimir Putin at APEC Summit in China 19-21 October 2001-12”
by Presidential Press and Information Office is licensed under CC BY 4.0.
There are more than 16,000 sanctions imposed against Russia. Yet the Russian economy and war machine grew by 3.6 per cent in 2023 and is projected to grow another 2.6 per cent in 2024.
Nearly six per cent of Russia’s gross domestic product goes towards military spending. At a time when Ukrainian President Volodymyr Zelenskyy is scrambling to acquire arms, funds and recruits, Vladimir Putin seems confident in his ambitions for the future.
How have 16,000 strategic sanctions issued by some of the most powerful economies in the world failed to derail Putin?
As I recently watched the news break on CBC about Russia’s robust economy, an advertisement from the World Gold Council popped onto the screen. And there was the answer, hiding in plain sight: Gold.
The Untouched Gold Market
Sanctions against Russia needed to be strategic, targeting the environment it operates in.
Economic sanctions targeted shipping and trade into Russia, but the gold market is a massive environment left largely untouched. After Russia invaded Ukraine two years ago, the United Kingdom, a major gold broker with one of the world’s largest gold reserves, cut all Russian imports of gold into the U.K.
According to the World Gold Council, Russia is now the second largest producer of gold at 324.7 tonnes in 2023, behind China at 374 million tonnes. Russia is expected to increase production of gold by four per cent a year until 2026.
Since 2013, Russia has been preparing for western sanctions and managed to isolate its economy from transactions requiring American dollars.
The Gold Standard
In early 2022, Russia pegged its currency, the ruble, to gold, and 5,000 rubles will now buy an ounce of pure gold. The plan was to shift the currency away from a pegged value and into the gold standard itself so the ruble would become a credible gold substitute at a fixed rate.
Usually the rationale for holding onto gold reserves is to use them to settle foreign transactions at home and abroad. Gold holders can trade it on one of several bullion exchanges; it can be swapped for currencies to settle transactions and then swapped back into bullion.
Usually countries want gold as a safety backing to insulate against broader global financial shocks. Many central banks are purchasing gold at breakneck pace, with about 1,073 tonnes purchased in 2022. A single tonne is about US$65 million, which means $110.6 billion in gold went into central banks globally in 2023.
The Influence of Consumers
Here’s where average citizens come in, and how they can help determine what’s to come.
Right now, if you’re a Costco member, you can order an ounce of Swiss gold for CA$3,045 (limit two per member, and no refunds). This is not a speculative investment. Physical gold will not quadruple in value by Christmas.
Instead, buying gold is a guard against inflation and currency devaluation in times of uncertainty. It’s the doomsday currency, which is why the World Gold Council advertises gold on cable news networks in exactly that vein.
If North American consumers, central banks and investors are panicked enough to buy gold en masse, the price will go up, and Putin’s plan works.
In the last quarter of 2023, American consumers purchased more than US$100 million in gold bars through Costco alone.
Tactics to Counteract Putin’s Strategy
To thwart Putin’s plan, the lustre needs to be removed from gold. Increasing gold supply could lower the price. Australia, Canada and the U.S. have important roles to play as leading gold producers.
Rising interest rates also tend to lower gold prices. A mass sell-off of government holdings in gold could also cause a tailspin for the ruble, but likely for the U.S. and Canadian dollars as well.
No single policy can thwart Putin’s goals — it requires disrupting the supply of gold beyond Russia, and that might well mean involving the U.A.E.
But with 16,000 sanctions on the books against Russia, one more smart sanction against the Emirates might be the golden egg Zelenskyy needs right now.
Robert Huish, Associate Professor in International Development Studies, Dalhousie University
This article is republished from The Conversation under a Creative Commons license.
