(NB: The situation is changing rapidly. Information is correct at time of publication.)
So the Russian bear is suffering and it looks - as usual - as if it's all about Oil. Or is it?
The quesiton in my head is why is the price of oil dropping, who is causing it and which nation(s) does that pressure?
If you're holding your physical Gold and Silver long, and think the price drop in Oil could affect your Precious Metal, don't worry. Oil is often connected to the "shaking out of weak hands" in the Gold and Silver Physical market. We believe it is wise to keep holding onto your physical. In fact any price drop is what the Physical Metals Market like to call a buying opportunity.
But how is Oil connected to Gold? Back before 2011, Gaddafi was about to trade his oil for gold, not dollars (we may not agree with all statements in that previous link but the page title alone is worth a look!) Oil is Libya's biggest export. Accordingly to US Energy Information Administration, Libya typically exports up to 95% of it's oil. In 2012, the year immediately after Gaddafi threatened to sell his oil for physical gold and cut out the dollar, Libya's exports totalled $61.42 billion (Opec's Annual Statistics Bulletin 2013, pg 13) and it was ranked 19th in the world as an oil exportor. Most of this oil went to Italy, Germany, Spain and China with only 3% and 4% going to the US and UK respectively (pg 6, EIA report). But Libya's move to sell that in gold rather than dollars would have rocked the Euro and the Dollar in one swoop. So that could not have been allowed to happen.
So where is the price-fall in oil maneuvering Russia? "While there appeared to be some initial respite for the Russian ruble on Wednesday (today) after the finance ministry said it had begun selling foreign currency, the rebound was short-lived and the currency was down 1.3 percent against the dollar and 0.2 percent down against the euro. The Russian economy remains in the grip of a "perfect storm" of low oil prices, looming recession and Western sanctions over the Ukraine crisis." (Reuters)
At the moment, Russia needs to sell foreign currency to bouy its system. But if the pressure gets really bad, the only option might have to be to sell it's Gold. And that is what we believe Putin's opposite chess players are after. Flood the global market with cheap stored oil. Push price of oil down. Russian has to sell gold at a discount. Buy Russian's Gold. Stop the flood of stored Oil onto the market. Gold price goes up. And Oil price goes up. It's clever. Because it looks all about the ruble and oil. But it's not. I believe it's all about the ruble, and gold.
But we don't think Putin is that silly, hence the title of this week's blog. We're not saying we wouldn't like him to be but we think the bear unfortunately mustn't bear underestimated. If he's backed too far into a corner there are all sorts of mutual alliances he might make in a counter move. Infact, the International Business Review saw this connection between oil and gold back in March re: the double-pronged approach of oil and sanctions. "Societe Generale SA (EPA:GLE) analyst Michael Haigh flagged the potential risk in a research note earlier this week, but told IBTimes it was unlikely that Russia’s central bank would sell gold to recover from sanctions, to make up for lost oil revenue."
No matter how this chess game in the short run affects the price of Gold (and Silver), we at Bleyer believe it is good to hold onto your Physical, because it will only be a shiver in the Gold and Silver markets. This is to be expected in these years of Central Banks vying for trading in their paper GLD / SLV for the real physical product. Venezuala, Germany and most recently last month, the Netherlands are all in the process of trying or succeeding to repatriate their Physical Gold reserves back to their own shores. We are only 18 months into the 7 year plan given to Germany by the FED to release Germany's Gold back to it's shores. And it seems only 6 months into the stay of execution of this plan between the FED and Germany, for some unknown reason. If we can figure out what happened in June of this year to bring this change of plan we'll let you know.
We never presume to be able to see behind all the curtains. And we've been caught out several times. But we believe there is definitely a whiff of Gold maneuvering going on behind the scenes here, or at least a pressure to. If JP Morgan can try to "shake out weak hands", then it is logical to assume it is going on between countries to an even greater degree. It feels like watching a dance where all the players are watching each other, forgetting that they too can be watched. If they would like to keep punishing the Physical Gold and Silver price while they exchange their paper for the real thing at a discount price, we say fine. It gives you and I - the average member of the public - more time to accumulate and trade our monopoly money for something of real value; notwithstanding the things in life that TRULY have value, like people, friends, health and family. But financially speaking, we believe it is wise in these "buying opportunities" to hold and accumulate some Physical Gold and Silver of your own.
But re-focusing on Putin. According to many market commentators "the attack this week on the ruble has been quite violent, and the market is now pricing in a recession in Russia next year," said Arnaud Scarpaci, fund manager at Montaigne Capital. But we at Bleyer don't personally believe Putin will release any significant portion of Russia's Gold. To bear in mind the pressure he will be under, Libya was ranked 19th in the world's oil exporters when their Gold reserves were appropriated by the back door, Russia is currently ranked 3rd!
But we still don't think he will sell his Gold. And this is why. He commissioned artists to create pictures of himself as Hercules for his recent 62nd birthday. We did have a laugh in the office but seriously, these pictures give a lot away.
"A new exhibit depicting Russia's demagogue as demigod opened in Moscow as a one-night-only tribute for Putin's 62nd birthday. Entitled the "12 Labors Of Vladimir Putin" (instead of the 12 Labours of Hercules) the exhibit depicts the Russian president in a variety of heroic feats as he triumphs over mythical beasts that range from a Cretan bull (referencing Crimea) to a multi-headed Hydra that seemingly represents western sanctions." (Huffington Post)
So to sell one's Gold under the pressure of sanctions over one's Oil would be a face-losing exercise we believe is not in Putin's pyschological vocabulary. Indeed only last month Russia stepped UP it's Gold purchases in the face of Western Sanctions:
"Russia’s central bank Governor Elvira Nabiullina told the lower house of parliament about the significant Russian gold purchases. She is an economist, head of the Central Bank of Russia and was Vladimir Putin’s economic adviser between May 2012 to June 2013. This announcement is unusual and to our knowledge has not happened before. The announcement by the Russian central bank governor was likely coordinated with Putin and the Kremlin and designed to signal how Russia views their gold reserves as a potential geopolitical and indeed financial and currency war weapon." (ZeroHedge, 19/11/14)
So although we would not be surpised to see these issues affecting the price of gold, we would not want you our customers to be surprised. Instead we hope you see this as another buying opportunity to either enter or accumulate your Physical Metals. And as we often say, in the physical market it is better to plan to hold long. For short exchanges there are ETF's but we at Bleyer are all about the Physical Bullion Metal. With this in mind, we can offer secure storage or a range of small to medium home safes, together with our range of gun cabinets. We can even help you hold Gold in your Pension, so call the office on 01769 618618 to find out more. Email at [email protected] or browse our website for current prices.
Christmas Office Closure: We will be closed over Christmas from mid-day Wednesday 24th and re-opening 9.00 am Monday January 5th. Please be aware that we rely on refiners to deliver the Gold and Sillver bars and coins. Most are taking last day processing on Friday 19th so please bear with us and we will process your order as quickly as we can. Deliveries will be affected by the Christmas period. But if you see a price drop of which you would like to take advantage over the Christmas break, do email the office with your contact phone number and we will get back to you as soon as we can. We will process orders and fix prices but with delivery most safely occurring in the New Year.
We wish you all a very peaceful Christmas and a good and happy New Year.
From the team at Bleyer Bullion.