Russia could be looking utilise a new gold trading market as a ‘fire escape’ currency, in a targeted move away from the US Dollar and the financial and trade restrictions placed against them.

Russia has been under a combination of US sanctions and other sanctions from the West for the past three years and has suffered economically from this and the rapid increase in fracking in the US, which has in turn decreased oil prices. Russia responded by forming an oil duopoly with Saudi Arabia to restrict supplies from the Middle East and raise global prices back up, but the surplus from the US is still keeping prices down.

The Russian authorities have been publicly open about their opposition to both the US Dollar and the US government’s interference with the value of the Dollar, with President Putin famously accusing them of abusing the reserve currency system.

In a speech given in 2011, Putin said: “They (America) are living beyond their means and shifting a part of the weight of their problems to the world economy… They are living like parasites off the global economy and their monopoly of the dollar.”

Back in December the First Deputy Chairman of Russia’s Central Bank, Sergey Shvetsov, announced that the BRICS nations – comprised of Brazil, Russia, India, China and South Africa – were working together to create a unified gold market.

BRICS nations represent almost three billion people, and around 20% of global GDP (gross domestic product). With Russia, China and South Africa all being large producers of gold, and Brazil, India and China all large consumers, it’s not a huge leap to think that this trading market could see gold used as a currency, rather than purely acting as a purchasing system for the precious metal.

Russian gold reservesPhoto courtesy of Vladimir Velengurin, showing the inside of Russia's gold reserves.

Over the past 10-15 years, Russia and China have been banking more and more gold into their reserves in a move away from reliance on the US Dollar. Russia officially holds the fifth largest gold reserves in the world, just ahead of China (unless their official statistics were a lie and they did add to their reserves) and amounting to 17% of the nation’s wealth.

For China, this process has been officially halted for the past 14 months due to their close trade relationship with the US but for Russia it is an ongoing mission, with their Central Bank having more than doubled the rate of gold purchases in the past 10 years alone by adding 1,250 tonnes of gold. Russia currently sits as the largest buyer of gold bullion in the world and is the third largest producer.

The increase in buying, coupled with increased mining rates of gold ore, is driven primarily by the privatisation of state-controlled gold mining companies and consolidation of smaller gold producers, both of which allowed Russian miners to compete on the global stage.

Russia, China and the other BRICS nations might not have quite the same figures as the US, Germany, Italy and France, but in combination their figures surpass all but the United States, and even their gold reserve numbers are believed to be over-estimated and less than pure gold bullion. A shared market could see growth taken away from the top tier nations and brought in to this hub and, given the success of the past decade for Russia’s stockpiling of gold, it’s not beyond them to have another great decade of wealth accumulation to challenge the USA as the world leader in gold and to use that gold to negate the penalties faced when trading uses the US Dollar.