From Russia With Gold

The Russian people have been through some trying times over the last few years.  While it is nothing compared to the days under the Soviet Union, there has still been much economic and political turmoil.

If we are to believe the polling data, Russian President Vladimir Putin is very popular amongst the Russian population.

I don’t think Putin is a saint, but he is also not the evil madman that the establishment media in the U.S. make him out to be.  He is a nationalist who, in many ways, is like Donald Trump.  I’m sure he believes in a “Russia first” policy.

It is understandable that Putin and the Russian people do not want NATO on their doorstep (which is contrary to what was originally agreed to).  The U.S. government has been destabilizing the Middle East and causing mass chaos.  The Russian people don’t really want that chaos spreading to their borders.

Putin did not really invade Crimea as many people (including some libertarians) will state.  This is a stretch of language.  It was the U.S. government that orchestrated an overthrow of the elected government in Ukraine, which destabilized the region.  The people of Crimea, who are Russian for the most part, voted overwhelmingly to join Russia.  They essentially seceded from the disaster of the Ukraine.  Who could blame them?  Also, consider that the Russian economy is far stronger than that of Ukraine.  The people of Ukraine live in mostly deep poverty.

When the U.S. (under Obama) placed sanctions on Russia, the ruble (the Russian currency) fell dramatically.  Fortunately for them, the Russian central bank allowed interest rates to rise in order to stop the bleeding.

While the ruble is still down considerably since its high back in 2008, and since dropping from the imposed sanctions in 2014, it has held up reasonably well against the U.S. dollar over the last couple of years.

There are a few significant things to note that have happened since the sanctions were first instituted in 2014.  First, the Russian central bank has been continually adding to its gold reserves.  Since January 2014, gold reserves have increased a total of about 50%.

The other interesting thing to note is that the Russian central bank has decreased its holdings of U.S. government debt.  Its holdings of U.S. Treasury securities at the beginning of 2014 was $138.6 billion.  At the end of November 2016, its holdings were $86.6.  There was actually a bump up in November too, but we don’t know if this is related to the election of Donald Trump.  It should be noted though that the Russians were already decreasing its holdings prior to the U.S.-imposed sanctions.

The overall trend is clear.  The Russians are diversifying away from U.S. dollars.  And who can blame them?  Perhaps it is ironic that the advocates of big government are the ones who pushed for sanctions on Russia, while these same people are the ones who depend on debt financing from other countries.  They also depend on a strong dollar.

This may be a slow process, but the Russians are helping to undermine the dollar.  They are coming to the same conclusion that many other countries are realizing – that you don’t have to use U.S. dollars as a middleman for world trade.

I believe the Chinese and the Russians are both increasing their gold reserves in order to shore up their own currencies, as well as to have a true world reserve currency that doesn’t involve the dollar.

While the sanctions hurt Russia, they are finding ways to get around them.  I believe that turning towards gold, even if slowly, is one of the ways to bypass the U.S. dollar.

This is a long-term reason to be bullish on gold.  As more foreign governments become tired of the antics and bullying of the U.S. politicians, they are going to cut out the U.S. dollar if they can.  The world will eventually return to gold as the most reliable form of money.

One thought on “From Russia With Gold”

  1. I am in total agreement with you that because Crimea voted to join Russia, it should have ended there. Russia did not invade, perhaps, but they certainly armed pro-Russia separatists who would eventually shoot down a commercial jet. So, that blood is on the hands of the Russia government. Like most libertarians I would like to have a good relationship with the Russians, discuss peace and trade, but have no interest in pursuing an entangling alliance.

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