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Posted June 27, 2022

Sean Ring

By Sean Ring

Russian Gold Cheap For Its Friends, Banned For Its Enemies

  • At the behest of POTUS, the G7 banned imports of Russian gold.
  • Since China and India arent in the G7, theyll fill their boots.
  • With the western gold markets missing a leading supplier, gold might get a bump.

Good morning on this sunny morning from Piedmont.

I hope you had a great weekend.

Late trains foiled our plans to head to the lovely beaches of the Riviera, so we settled for a city beach in Genoa.

Not the best sand weve been on, thats for sure.

But it was a fun day nevertheless.

And yesterday, we slept and slept. Boy, did we need it!

Sleeping is something I wish the G7 would do.

I dont know about you, but I think this assembly of the worlds biggest democracies does more harm than good.

Sure, theres been a Marshall Plan discussion for rebuilding Ukraine.

Its the least America can do after backing them in an unwinnable war.

But absent from the talks has been any graceful way for them to save face and talk to Russia again.

And its not just me who thinks the G7 needs to wise up. Henry Kissinger feels the same way.

But of course, the G7 has done the opposite.

Now, theyre banning imports of Russian gold.

In this edition of the Rude, Ill go over why this is a useless and futile gesture. And why itll help Americas enemies build up their gold stockpiles.

Todays Word is Bifurcation

Whats bifurcation, you ask?

From Merriam-Webster:

bifurcation noun

bi?fur?ca?tion | \ ?b?-(?)f?r-?k?-sh?n \

1a: the point or area at which something divides into two branches or parts: the point at which bifurcating occurs

Inflammation may occlude the bifurcation of the trachea.

b: BRANCH

2: the state of being divided into two branches or parts: the act of bifurcating

In this case, the gold market is the bifurcation Im talking about.

Because if you think Russia will no longer sell gold, Ive got a nice bridge over the East River to sell you.

Russia will sell gold to its allies, probably at a nice discount.

And thats if they even want to.

Because what Joke Biden didnt tell everyone is that Russia is the worlds biggest buyer of gold.

From a Nasdaq.com article published last month, which listed Russia as number one in terms of buying gold:

Russia has been among the top buyers of gold in the last ten years pushing its gold reserves from 882.96 tons at the end of 2011 to 2,301.64 tons at the end of 2021.

In the past five years, Russia has added 683.31 tons of gold, out of which 474.81 tons was bought in 2017 and 2018.

Overall, the country has added more than 1,900 tons of gold since 2005. Russias gold reserves constitute around one-fifth of its total reserves and is roughly equivalent to $140 billion.

During Q1 2022, there has been no fresh purchase or sale from its gold reserves. Russia currently has the fifth highest gold holdings among nations globally.

Amid the rise of demand for gold by households, the central bank announced its decision to buy gold from credit institutions at a negotiated price to manage the demand and supply of gold more effectively.

Knowing this, The Sirius Reports tweet makes much sense:

Credit: Twitter

Though I do love ZeroHedges irreverence:

Credit: Twitter

In a nutshell, the Leader of the Free World - really - has officially separated the paper market from the physical market.

In reality, London Bullion Market Association already did that in March at the outset of the Russia-Ukraine War.

Then, the LBMA removed Russian gold refineries from its accredited list. This resulted in gold shipments between Russia and London collapsing to almost zero.

Biden and his G7 buddies have thrown a nothing burger down Broadway.

Russia Sets Up a Special Reserve

Sanctions never work, particularly against a nation of chess grandmasters.

Theyll always find a way around the sanctions.

As Ive written before, sanctions helped Russia become the worlds number one wheat exporter.

Ive also written about how the current round of silly sanctions has forced Joke Biden to fly to Saudi to beg for output increases.

The food shortages are scary and about to come to fruition.

And now, Russia will set up a special reserve for times of war.

From Kitco:

The proposed amendment states that part of Russia's precious metals and gemstone reserves would be set aside to be used for the mobilization needs of the country, Russian media reported this week citing the existing bill titled "On mobilization training and mobilization in the Russian Federation."

Again, not huge news. Its just another bit of evolution that sanctioning causes.

Russia will be able to move its capital around to vex its enemies.

This Time Its Different

What I - and many other thinking people - dont quite understand is why the Western world continues to do business this way.

Its difficult to be optimistic when your government keeps getting the same thing wrong repeatedly.

I happened to run into this Bloomberg piece on China. Its mind-blowing.

Credit: Bloomberg

From the article:

The biggest underlying trend is Chinas quest for self-sufficiency in the supply chain, catalyzed by Covid-related lockdowns, Morningstar analyst Phelix Lee wrote in an email responding to inquiries from Bloomberg News. Amid lockdowns, Chinese customers who mostly use imported semiconductors need to source homegrown alternatives to ensure smooth operations.

Of course, sanctions, supply chain issues, and government-mandated private sector shutdowns are all to blame.

But at the bottom of it all is ill-conceived government policy.

Former Defense Secretary Robert Gates once said of Joe Biden, he's been wrong on nearly every major foreign policy and national security issue over the past four decades.

Unfortunately, that streak has continued for five decades now and doesnt look like it will change.

All the more galling is that seemingly everyone outside Bidens inner circle, even close allies, disagrees with the current course.

Wrap Up

Typically, it takes a lot for a man to admit hes wrong.

Especially when hes the President of the United States.

But I think itll take a freezing Europe with a frozen manufacturing industry.

Thatll be in November, probably, perfectly timed with Bidens overwhelming defeat in the midterm elections.

Unfortunately, we have to wait until then.

In the meantime, enjoy this bear market rally.

As base metals have plummeted lately, I think this respite will be short-lived.

Until tomorrow.

All the best,

Sean

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