Gold is now down to below $1,200 an ounce and countries have been buying in droves. Russia has led the way, buying 55 metric tons of the yellow metal in the 3 months prior to October. According to the World Gold Council, this is far more than any other nation.
The UK Telegraph is reporting that “Vladimir Putin’s government is understood to be hoarding vast quantities of gold, having tripled stocks to around 1,150 [metric tons] in the last decade.” It is thought that Russia is doing this in order to prepare for a lengthy economic war with the West and to offset sharp declines in their own currency, the ruble. Ongoing sanctions from the United States and Europe, along with falling oil prices, have had a tremendous impact on the value of the ruble, driving its value down to near record lows.
Russia is not the only government taking advantage of low gold prices. The World Gold Council (WGC) has reported that by the end of the year, central banks will have acquired “up to 500 [metric tons] of gold during the latest buying spell.”
Alistair Hewitt, head of market intelligence at the WGC, told The Telegraph, “Central banks have been consistently adding to their gold holdings since 2009. In the case of Russia, recent increases in its gold holdings could be a sign of greater geopolitical risk that has arisen since it seized Crimea sparking a dispute with Ukraine and the West.”
Demand for gold is actually down 2 percent year-over-year, due in large part to signs that gold buying and consumer sentiment in China, one of the largest buyers of gold, has declined. Despite the decreases in China, the rest of the world, including India, has seen an increase in demand for gold according to the WGC .
Most major governments are scooping up gold at record rates, yet gold prices continue to fall and many analysts believe that gold will post its second straight yearly loss. The World Gold Council believes that the world is in for extended geopolitical turmoil, but investor sentiment remains weak.
What does all of this mean?
If the WGC is right, and most world governments seem to believe that they are, then a lengthy economic battle between Russia and the West could lead to drops in both the U.S. and international equity markets. Historically, gold thrives under these conditions and currently the yellow metal can be purchased at its lowest price in the last four years.