President Putin admitted that the economic sanctions Western officials have imposed on Russia are taking a toll on Russian businesses. This has been most notable in the Russian stock market as money continues to be pulled from the system.
President Putin has also made the point that any economic sanctions imposed on Russia would have a boomerang effect, which will do more harm than good to those imposing the sanctions. This is a point that I have alluded to in multiple articles recently and wholeheartedly agree with.
The reality is that Europe is heavily dependent on Russia for its energy needs. Specifically, Europe is dependent on Russia’s natural gas. Therefore, Russia and China’s announcement last week on a massive $400 billion natural gas deal came as shock to many, essentially redirecting roughly 20 percent of Europe’s natural gas supply to China.
This deal, although it has been in the works for the past decade, was seen as crucial for Russian officials as the crisis in Ukraine continues to escalate. As mentioned previously, Russia holds all the cards. Russia’s number one export is energy, and their close friend China needs that energy, regardless of Western sanctions.
Sadly for the innocent citizens of Europe, the demand for energy remains. This will result in higher prices at a time of severe stagflation. Wages continue to decrease across the West, as the cost of goods continues to increase.
Another response to Western economic sanctions by Russia has been the liquidation of U.S. Treasuries. Since the economic crisis began, Russia has unloaded an estimated $50 billion in U.S. Treasuries.
Until recently, investors were unsure of what Russia would do with the proceeds of its U.S. Treasuries. Last week, the Central Bank of Russia shed some light on that question when it disclosed that it acquired an additional 900,000 ounces of gold in the month of April.
In addition to this 900,000 ounce purchase of gold, Russia’s gold and silver miner Polymetal acquired a large gold mine in neighboring Kazakhstan. The project, known as the Kyzyl gold project, consists of two mines with estimated reserves of 6.7 million ounces.
We know that there is an insatiable demand from China. We know that Russia and Iran continue to accumulate the yellow metal, along with numerous other countries and we know that mints around the world are reporting record sales. What is not known is the source of this gold.
It is becoming quite clear that Russian officials will continue to acquire gold. They will continue to disconnect themselves from Europe and move themselves more in line with Chinese interests.
The West is forcing Russia in this direction. Sadly, as president Putin has said, the boomerang effect is going to do much more harm than good.
Full article: Russia Strikes Back Against the West, Purchases 900,000 Ounces of Gold (Sprott Money)