In December of last year we published an intriguing article by Dmitry Kalinichenko, "Grandmaster Putin's Trap
," which has drawn far more attention from readers than we ever expected. It continues to be cited
by many international political and economic experts. That article addressed Russia's latent strategy to get rid of US bonds and use its petrodollars to buy monetary gold. It seemed for a while that the ruble's nosedive late last year, coupled with the Kremlin's reduced fiscal space, has left Moscow unable to pursue its plan to permanently diversify the international financial system. Nevertheless, taking a look at 2015, it turned out that Putin's strategy is working quite well.
Due to invisible market's hand
the gold-to-oil price ratio
has more than doubled in the past two years. While in May 2014
it cost 12 barrels of oil to buy one ounce of gold
, this ratio rose to 26 barrels/ounce in January 2015
(where it currently remains). By lowering the price of oil relative to gold, it looks like Wall Street & London's City are trying to hamper Russian tactic of buying gold in exchange for oil and natural gas (gas prices are linked to oil via BTU
). However, these actions fell short of their goals. Declining oil prices and a depreciating national currency have not led to a slowdown in the Bank of Russia's gold purchases on the domestic market for rubles. Despite threats and sanctions, Russia has continued to add to its gold reserves
. Bank of Russia bought a record 171 tons of gold in 2014 and another 120 tons in the first ten months of 2015
. Consequently, by Nov. 1, 2015 the Bank of Russia had accumulated a total of 1,200 tons of gold in its reserves
, which are officially the fifth largest in the world, although in reality Russia is actually in 4th place, as Germany is allowed to store only one-third of its reserves
at home. In fairness it should be noted that China has not provided updated data on its gold reserves since 2009, when it officially possessed 1,054 tons. According to some estimates
, Chinese reserves may have tripled since than.