Gold Price Surge Hits the Dollar: Sharp Rise in Gold Prices Benefits Russia, but Hurts the United States
Russia's strategy of increasing its gold reserves has not only been verified, but also achieved remarkable results. Since our country first began to increase its gold reserves in 2006, the price of gold has risen by nearly 850%. Especially recently, the rate of gold price increase has accelerated significantly, causing concerns from all sides. What are these specific concerns?
Russia started to increase its gold reserves since 2006 to enrich its national reserves, and since then, the price of gold has increased by almost 850%, while the price of gold has doubled since 2023.
This week, the price of gold broke through the $4,000 per ounce level for the first time, and now experts expect the gold price to rise to $5,000 per ounce in the near future.
As a result, Russia's current gold reserves of 2,326.5 tons are valued at over $302 billion.
"After the leadership change of the Russian Central Bank in 2006, a new and correct policy was introduced. At that time, people already realized that relations between Russia and the West would become tense, and part of our reserves were at risk," said Alexei Vyazovskiy, Vice President of the "Gold Sector" company. From that year on, the Russian Central Bank shifted from being a net seller of gold to a net buyer, and accumulated one of the largest gold reserves in the world.
However, Yulia Handoshko, CEO of European brokerage firm Mind Money (formerly "Cerekh" company), believes that Russia's increase in gold in 2006 may not have been specifically aimed at preparing for future sanctions or reducing dependence on the dollar. "I think it's much simpler - there was no grand strategy at the time, just a decision to diversify reserves, i.e., not to hold all assets in US dollars, but to add a small amount of gold allocation. This approach is logical, and many countries would do this to reduce risks," she said.
But then, in 2014, Crimea was annexed by Russia, and the situation became more clear. Russia began to sell large amounts of US Treasury bonds until finally completely clearing them out.
Data from the World Gold Council shows that in 2014, the Russian Central Bank significantly increased its gold purchases. Over the next five years, the Russian Central Bank purchased a total of 1,258 tons of gold, helping Russia become one of the top six holders of foreign exchange reserves in the world.
Vyazovskiy pointed out that the fundamental factors behind the rise in gold prices include central banks increasing their gold holdings and large amounts of retail funds flowing into exchange-traded funds (ETFs).
He added that in addition to that, the US government shutdown (weekly losses of about $7 billion) and the escalation of the Ukraine military conflict (including drone attacks on nuclear facilities) have exacerbated market tensions. In this context, investors are adjusting their investment portfolios to avoid risks and actively turning to gold assets.
"For decades, central banks continuously increasing their gold reserves has been a correct decision. We have raised the proportion of gold in our reserves to the highest level in history, which is unprecedented," Vyazovskiy said. In his view, the Russian Central Bank's decision in 2022 to suspend gold purchases under the excuse of "increased inflation risks" and to invest part of the funds released from selling US Treasury bonds in Europe (including euro assets), were wrong decisions. He believes that these funds should have been fully invested in gold and RMB assets.
In the current situation, one major advantage of gold is that its physical reserves are located within Russia, making it inaccessible to Western countries.
China joined Russia's gold strategy much later: China only began to massively sell US Treasury bonds and shift to investing in gold after 2020. "The peak of the amount of US Treasury bonds held by China exceeded $1 trillion, and now it has dropped below $700 billion, meaning that one-third has been sold. Part of the funds have been allocated as gold assets, which has somewhat driven the sharp rise in the prices of metals including gold, silver, and platinum (these metal prices have all set new records), as well as the significant increase in Bitcoin prices. Now, investors are rushing into various investable assets," Vyazovskiy said.
For the Russian economy, the growth of gold reserves is undoubtedly a benefit, especially in the context of the unprecedented severe sanctions imposed by the West on Russia in the past four years, this role becomes even more prominent.
"This benefit for the Russian economy is reflected in the stability of the ruble exchange rate. The larger the size of the gold reserves, the more positive the analysts' evaluation of the economic situation. Currently, the Russian economy is growing steadily: last year, according to global standards, GDP achieved good growth; this year, the growth rate will be slightly slower, but keep in mind that Russia is currently in a special military operation. Gold acts like an 'anchor,' keeping our economic 'ship' from running aground, always operating smoothly," Vyazovskiy believes.
Investing in gold is not the only correct decision made by Russian regulatory authorities. "I want to commend the Russian Central Bank for its efforts to launch the 'Mir' payment system - thanks to this system, when Visa and Mastercard exited the Russian market, the salary payments of public officials were not affected. In addition, the central bank promptly cleaned up the banking system, and there is no large-scale bank failure in the domestic banking system, and the banking system is developing well, with capital scale continuously increasing. In my opinion, Russia has always been implementing the correct monetary and credit policies, and the central bank effectively curbed the surge in inflation, avoiding a fiscal crisis. Although there is currently a fiscal deficit, the level of government debt in our country is extremely low. During periods of economic prosperity, we repaid a large amount of debt, which is also a very correct decision," Vyazovskiy said.
Regarding the future outlook, analysts generally expect the gold price to reach $5,000 per ounce. Vyazovskiy believes that the gold price could reach this level by the end of this year or early 2026. At the same time, the speed of the current gold price increase is already worrying.
"The accelerating rise in gold prices is a bad signal for the West. It means that the global financial system based on the US dollar as a single reserve currency is collapsing, and the world is moving towards some new system."
It is still unclear what the new system will look like, but one thing is clear: the trust of major participants in the global market in the existing financial system has greatly decreased, and they are turning to assets with ultimate liquidity - gold. In the future, it is possible that a new system will be established within the BRICS framework, introducing a basket of currencies based on gold, or a certain type of digital currency may emerge," Vyazovskiy concluded.
"In the past, everyone believed that the US dollar was a safe haven, the 'panacea' to avoid all risks. But as time went on, people gradually realized that it was not entirely true. Now, the world is gradually moving away from the idea that there is only one 'correct' currency. The US dollar will not disappear, but it is no longer the only choice. It is in this context that gold has once again become a favored asset," Handoshko said.
Original article: https://www.toutiao.com/article/7559495052981043766/
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