On March 25, 2022, Russia announced a plan to put the ruble on a gold standard. By pegging its currency to gold, Russia can declare the ruble’s value at a fixed exchange rate as a gold substitute.
The act may make the ruble more stable than the U.S. dollar, which is not tied to a gold standard. Economists are also predicting that China may be making a similar move toward a gold-backed yuan.
The moves may be part of a strategy to move international trade away from the use of the U.S. dollar, according to Ronan Manly of Singapore’s BullionStar.
“China and Russia have both been aggressively accumulating their official gold reserves over the last 10– 15 years,” Manly said. Only a decade ago, each of them held “around or less than 400 tons, but now both [of] these nations hold a combined 3,670 tons of gold.”
Both countries have also been seeking to stockpile new gold through gold-mining ventures. China is the world’s largest gold producer, producing an estimated 370 metric tons in 2021.
Russia was the third-largest gold producer in 2021, behind Australia. However, Russia is now on pace to overtake China and Australia in global gold output as it expands mining operations. The Institute of Geotechnologies predicts Russia will become the world’s largest gold producer in the next decade if it continues on its current growth trajectory.
The move to a gold-backed ruble also allows Russia to circumvent sanctions placed by the U.S. due to the invasion of Ukraine. Though the U.S. sanctions preventing transactions with the Russian Central Bank also apply to the sale of gold, gold sales are much more challenging to monitor.
For example, when the U.S. put Venezuela under sanctions, the South American country was able to route gold sales through Turkey and Uganda. Analysts predict that Russia could deploy similar tactics by selling its gold to India, China, or Kazakhstan.
“They can definitely find ways to still sell their gold,” said Jeffrey Christian, managing partner at precious metals research and consulting firm CPM Group. He has been following gold trading for several decades. “Gold has been loved by people for millennia, partly because of the secrecy of it all.”
Russia and China have also been actively investing in silver and other precious metals to advance their economic future. Silver is also called the “poor man’s gold” because it is subject to the same market influences as gold but is cheaper; the metal’s prices reflect economic growth because it has utility and industrial applications.
China is the world’s third-largest producer of silver, while Russia is the world’s sixth-largest producer.
Russia and China have also outpaced the world with rare earth element (REE) investments. REEs are essential elements, such as lithium, cobalt, and copper, used in electronics and renewable energy technologies. Most of the world’s REEs are in Africa, where China and Russia have been aggressively working on mining deals with African nations.
Russia and China are banking on an economic future anchored by hard physical assets. Accordingly, both countries have been on an active quest to accumulate much of the world’s cache of gold, silver, and precious metals. The next few years will reveal how well this strategy pays off.