A Coming Surge in Physical Gold Demand?

Beyond the military actions, there have been numerous economic and political actions and reactions in response to Russia’s invasion of Ukraine. One fresh development could spark a significant increase in demand for physical gold, which would almost certainly result in a near-term huge price increase for the metal.

From Feb. 22, just before the invasion started, to March 8, the value of the Russian ruble fell 35 percent against the U.S. dollar. Since then, the ruble has fully recovered. On Monday this week, the ruble reached a five-month high against the dollar and two-year high against the euro.

How did this happen?

Russia has forced other nations that receive Russia’s oil exports to pay for them in Russian rubles instead of the U.S. dollar. This action sharply increased international demand for Russia’s currency.

Now, the next step is in the works.

Russia, in collaboration with China, is planning to accept physical gold as payment for its oil exports. Not only will it accept gold, it will sell oil for a lower price if they are paid in gold instead of in rubles.

This move will encourage several buyers of Russian oil to acquire physical gold to make payment in that form. As demand for gold increases, that is bound to result in major price increases for the metal.

This countermeasure by the Russian government is specifically meant to inflict financial harm to the economies of the U.S. and other nations imposing sanctions on it. A rising gold price will further devalue the purchasing power of the US dollar and force the federal government to pay a higher interest rate on U.S. Treasury debt. China, which has massive reserves of physical gold, will actually benefit by this action of the Russian government.

If this shift comes to pass, that would mean that acquiring gold at today’s price could quickly turn out to be a bargain.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman National Dealer of the Year Award and 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), Professional Numismatists Guild, Industry Council for Tangible Assets and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).