How Putin’s Gold Strategy Defeated Sanctions

Russia spends around six percent of its GDP on military expenditures. Vladimir Putin appears to be confident in his plans for the future, while Ukrainian President Volodymyr Zelenskyy is rushing to gather weapons, money, and supporters.

Russia spends around six percent of its GDP on military expenditures. Vladimir Putin appears to be confident in his plans for the future, while Ukrainian President Volodymyr Zelenskyy is rushing to gather weapons, money, and supporters.

The yacht “Amadea,” owned by Russian oligarch Suleiman Kerimov, who is under sanctions, costs US taxpayers $1 million a month.

How come Putin hasn’t been deterred by 16,000 strategic sanctions imposed by some of the world’s most powerful economies?

While observing the news on CBC regarding Russia’s strong economy, an advertisement from the World Gold Council appeared on the screen, offering a clear solution: gold.

The role of gold

Sanctions in Russia have to be targeted strategically at the environments in which they operate.

Trade and shipping into Russia were the focus of economic sanctions, but the vast gold market was mostly unaffected. The United Kingdom, a significant gold broker with one of the largest gold holdings in the world, stopped importing any gold from Russia after the Russian invasion of Ukraine two years ago.

Russia is currently the world’s second-largest producer of gold, with 324.7 tonnes in 2023, behind China’s 374 million tons, according to the World Gold Council. Up until 2026, Russia is predicted to boost its gold production by 4% per year.

Russia has been getting ready for Western sanctions since 2013, and it has been able to keep its economy apart from transactions that need US cash.

Russia tied the value of the ruble to gold in early 2022, meaning that 5,000 rubles would now purchase one ounce of pure gold. For the ruble to be a reliable alternative to gold at a set rate, the currency was to be moved from a pegged value to the gold standard itself.

Retaining gold reserves is typically justified by the need to pay foreign exchange transactions both domestically and internationally. Owners of gold may trade it on several bullion exchanges; it can also be converted back into bullion after being exchanged for other currencies to pay transactions.

For instance, Venezuela, a nation under severe sanctions, supplied gold bullion to Iran in return for technical support with oil production.

Typically, nations use gold as a safety net to protect themselves from more significant global financial crises. A lot of central banks are buying gold at a rapid rate; in 2022, they will have bought around 1,073 tons. One tonne is equivalent to roughly US$65 million, therefore in 2023, central banks worldwide held $110.6 billion worth of gold.