Two of the world’s biggest superpowers—Russia and China—are pushing the same investment agenda: precious metals. The two economic giants are buying up gold like it is going out of style. While the trend did not go unnoticed over the last year, it did not garner the same sort of attention in the press that the fall in the price of gold did.
That is, until two things happened in mid-November.
First, eclipsed its highest gold reserve amount in more than twenty years. Secondly, the price of gold jumped 6%. What adds to the intrigue is the fact that just two weeks before, the price of gold had hit a 14-year low.
In 2013, the price of gold took a major hit, dropping almost 28%, and while the fall in 2014 was less steep, it was to greater depths. With respect to gold, the drop in gold prices dominated the headlines—not what Russia and China were doing in this same time frame.
But, following mid-November’s world economic developments—events that included China slashing interest rates in an effort to stimulate growth and the Ukraine selling 35% of its bullion reserves to Russia—the rest of the world is scrambling to figure out if the market is just correcting itself after gold’s dismal 2013/14 spell, or if the price is once again going to skyrocket as big economies begin dumping the dollar and the euro.
Why the Urgency?
It is no surprise that China and Russia have massive gold reserves. What is a little surprising is that these two countries are buying it up at unprecedented rates and in historic volume. According to Evgeny Fedorov, a lawmaker for Putin’s United Russia party, “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency.”
Considering the approach the West is taking with respect to Russia’s invasion of Crimea and what seems to be an inevitable conflict in the Ukraine, it is understandable why Russian leaders want to develop financial solvency. What is not quite as clear is what their mass consumption of gold will do to the price of precious metals in the months to come.
What Does the Sudden Change Tell Speculators?
Even Americans like Ron Paul—who believe strongly in the value of gold—are hesitant to predict what is going to happen in the coming months, but he believes eventually that those who make the mistake of thinking paper money can replace gold will pay dearly. “The dollar still does function, but there will be a day when it won’t. I think it’s a shift, as you say to the East, because we will keep selling gold and China is going to keep buying gold,” Ron Paul 1 said in an interview.