Midas touch: How Putin is using gold to defy Western sanctions on Russia

After its invasion of Ukraine, Russia has joined the rank of one of the most sanctioned nations. Yet, despite the imposition of over 16,000 sanctions by the global community, Russia’s economy and military spending continue to rise, with a reported growth of 3.6% in 2023 and an anticipated increase of 2.6% in 2024. As Ukrainian President Volodymyr Zelenskyy seeks additional support, Russian President Vladimir Putin remains seemingly unphased, prompting questions about the effectiveness of the sanctions.
India, China and other nations have helped Putin offset a part of western sanctions by their continued purchases of cheap Russian energy resources. India and Russia have emerged two top buying nations of Russian oil since the beginning of the Ukraine war. Both India and China have purchased Russian oil well within the limits set by the western block.
However, apart from continued export of oil and gas, another crucial element in Russia’s resilience appears to be its strategic focus on gold, a report in the Conversation said. Economic sanctions have primarily targeted Russia’s shipping and trade sectors, yet the significant gold market remains relatively unscathed. Following Russia’s invasion of Ukraine, the United Kingdom ceased all Russian gold imports, yet Russia has maintained its position as the second-largest gold producer worldwide.
Russia has been fortifying its economy against Western sanctions since 2013, culminating in the pegging of the ruble to gold in early 2022. This move, intended to dissociate the Russian economy from the US dollar, establishes the ruble as a viable alternative to gold at a fixed rate. Countries like Venezuela, despite facing heavy sanctions, have leveraged their gold reserves for international trade and assistance, exemplifying gold’s role in circumventing economic restrictions.
The global central banks’ growing gold acquisitions, amassing about 1,073 metric tons in 2022, underscore the metal’s enduring value as a hedge against financial instability. Despite fluctuations, gold remains a foundational asset for countries aiming to stabilize their currencies and shield against global economic pressures.
While nations like the UK, US, and Canada have refrained from engaging with Russian gold, other countries have not hesitated. The United Arab Emirates and Switzerland, for example, have significantly increased their imports of Russian gold, thus bypassing the intended impact of the sanctions, the Conversation report said.
Putin’s ambition extends beyond merely bolstering Russia’s economy through gold; he envisions the precious metal replacing the US dollar as the primary medium for global trade. However, the success of this strategy depends on an increase in gold’s value, which is influenced by various factors, including consumer demand and central bank policies, the Conversation report said.
In response, consumers and investors in North America and beyond have the potential to impact gold’s market value through their purchasing decisions. For instance, American consumers’ significant investment in gold, including through outlets like Costco, inadvertently supports Putin’s strategy, especially if the purchased gold includes Russian sources.
Counteracting Putin’s gold strategy requires a multifaceted approach, involving not only individual consumer choices but also coordinated actions by major gold-producing countries and strategic policy adjustments. The challenge lies in diminishing gold’s allure without adversely affecting the global economy, especially considering the interconnected nature of international markets and the pivotal role of gold in financial stability.
Ultimately, understanding and disrupting the gold market’s dynamics may hold the key to undermining the economic foundations supporting Russia’s current geopolitical ambitions and resilience against sanctions.
(With inputs from agencies)