Gold, Oil And Putin's Trap

Gold, Oil, & 'Grandmaster' Putin's Trap

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.

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.

The year 2014 brought Wall Street yet another unpleasant surprise. Russia emerged as the world’s second biggest gold producer, surpassed only by China. China and Russia’s global leadership in gold mining enables them to create their own currency and trading systems, built on a solid foundation of gold, which will be used by the BRICS countries as a universal unit of account and as a fixed measure of cost.

Faced with the prospect of having to grapple with a powerful Russian-Chinese gold alliance soon that will call into question the dollar’s future as global reserve currency, the United States has begun to employ all its traditional punitive measures against a country that has dared to challenge America’s financial clout in the world. Ignore all the blather about “democratic values” – these measures are nothing but a way to force Russia to sell gold.

The Russian people have heard Washington’s ultimatum and understand it perfectly: the US has imposed sanctions in order to oust the legitimate and democratically elected government in Moscow. But not surprisingly, the sanctions levied by the US against the Russian public – at great cost to the EU – have had the opposite effect. Russians have rallied around their nation’s leader, and China and Russia are now closerthan ever before. 

It is important to keep in mind that the dollar’s attacks on gold end always end the same way – in a painful knockout for the dollar. There have been no exceptions to this rule throughout monetary history. Nor will there be this time. Hence the well-known market rule: “Any maximum of the gold price is not the last one.” It would be naive to believe that this golden rule is unknown to that grandmaster of patience, Vladimir Putin, and to Xi Jinping. By systematically increasing their gold reserves, Russia and China are relentlessly moving forward to strip the US dollar of its status as a global reserve currency.

America’s standard military solution won’t work in this situation. Russia is not Iraq, Libya, or Yugoslavia. Were the US to launch direct aggression against a country like Russia, that would be their last move ever. Therefore, the White House is trying to use radical militants from Muslim and European countries as cannon fodder. 

Today Ukraine and Syria are the theaters for America’s hot war against Russia, and the European Union is the theater for America’s economic war against Russia (it is noteworthy that while European entrepreneurs are suffering under the sanctions imposed on Russia, their American competitors are busy signing lucrative new deals with Moscow).

Recently, European countries have begun to realize that Washington is simply conning them. Taking its cue from America’s geopolitical ambitions, Europe is single-handedly reducing its own level of competitiveness. If we peel away the lofty slogans and declarations about “values” and just consider the dry economics of the matter, everything becomes clear: if the EU is cut off from its supply of cheap Russian energy, in addition to being cut off from the massive Russian market for its goods, Europe will not be able to survive in its present form.

Wall Street & London’s City, as before, do not know what Putin has in mind. But everyone is quite certain that Putin is up to something, and whatever that is will surprise everyone and advance the interests of Russia and its allies.

Predictions by leading Western media outlets about the imminent emergence of a Russian-Chinese alliance to revive the gold standard are heard often enough that they now seem like signals or even calls for such a step, addressed to Moscow and Beijing.

Obviously, the enfeebled US dollar that has lost 98% of its purchasing power in the last 40 years (as just another unsecured pseudo-currency) is already on the brink of its natural devolution to zero.

 As soon as Russia and (or) China issues such a gold currency, it will be immediately attacked by Soros and other speculators in Wall Street’s pocket like him. Whatever the face value, in rubles or yuan, that is embossed on the gold currency of Russia or China, after a while that value will begin to diverge from the value of the gold within the coin. It will become profitable for speculators to cyclically exchange paper currency for gold currency, which will deplete the country’s gold reserves and consequently lead to default.

As the situation currently stands, there is no one in the world who can answer this ostensibly simple question: why, knowing that it is not feasible to mint a gold national currency, are Russia and China continuing the rush to build up their gold reserves? Right now no one in the world knows that…. except Putin himself and his colleague Xi Jinping…

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