ask not what your country can do for you, ask what gold can do for your country
telegraph.co.uk
Putin’s big bet on gold pays off as price tops $4,000As the Kremlin’s war with Ukraine wages on, a stockpile of bullion has helped keep Russia afloat
Chris PriceMarkets Editor
Related Topics
08 October 2025 4:12pm BST
193
Gift this article free
Russia’s gold reserves are part of Putin’s plan to construct a ‘fortress’ economy impervious to economic sanctions Credit: Alexander Kazakov/Reuters
Vladimir Putin’s Russia has faced a barrage of sanctions from around the world as it has waged its war in Ukraine. But its economy has been able to fall back on one key pillar of support: gold.
Russia’s central bank switched from being a net seller of gold to a net buyer in 2006 and has amassed one of the largest stockpiles in the world. The gold reserves are part of Putin’s plan to construct a “fortress Russia” economy impervious to sanctions.
Putin’s ploy has paid off handsomely in recent weeks after a surge in the price of bullion. Gold surged past $4,000 an ounce for the first time on Wednesday, taking its gains so far this year over 50pc. The rally values Russia’s 2,326.5-tonne hoard at just over $302bn (£225bn).
The most recent rally has been driven by concerns about a bubble in artificial intelligence (AI) stocks, worries about the US government shutdown and he unexpected resignation of France’s prime minister Sébastien Lecornu.
Yet the price of gold has enjoyed a meteoric rise in recent years. It has doubled since the end of 2023 and rocketed 841pc since the start of 2006, when Russia began building its stockpile.
The Central Bank of Russia significantly ramped up purchases of gold in 2014, according to data from the World Gold Council, around the time of Putin’s annexation of Crimea. It bought 1,258 tonnes of gold over the following five years, helping it to build the sixth largest national reserve in the world.
Now, as the world shuns Russia, Moscow is cashing in. The country was one of only two net sellers of gold in August of this year. It offloaded just over three tonnes of bullion, worth around $441m, as Putin battles to fund his war machine. The World Gold Council said Russia’s gold sales were “likely related to its coin-minting programme”.
Putin’s war in Ukraine has helped to drive up the price of gold in a Machiavellian virtuous cycle that has benefited Russia.
Gold is traditionally considered a safe haven in times of turmoil. Ewa Manthey, a commodities strategist at ING, said its “historic rally” had been spurred by conflicts in the Middle East and Ukraine. Its price has surged by 111pc since Putin’s invasion in February 2022.
“The move higher in gold has been driven by two forces, firstly the significant increase in central bank purchases since the Ukraine conflict and secondly a more recent drive from retail investors, where we’ve seen a significant increase of flows into ETFs [exchange traded funds], for example,” says Eren Osman, of private bank Arbuthnot Latham.
The Ukraine war is one of numerous crises that have swept the world in recent years, ranging from the pandemic to Donald Trump’s trade war and concerns about rising government debt levels.
“Funds and global reserve managers want a hedge against fiscal recklessness, currency debasement, and unpredictable government policy, and gold sits squarely at the heart of that movement,” says Chris Weston, an analyst at broker Pepperstone.
Gold has also surged as interest rates begin to fall around the world following a period of steep increases in the aftermath of the pandemic. Investors widely expect the US Federal Reserve to cut interest rates this month. Lower rates weaken the dollar, making it cheaper for buyers of gold who do not use the US currency.
Tai Wong, an independent metals trader, told Reuters: “There’s so much faith in this trade right now that the market will look for the next big round number, which is 5,000, with the Fed likely to continue to lower rates.
“There will be some bumps in the road, like a lasting truce in the Middle East or Ukraine, but the fundamental drivers of the trade, massive and growing debt, reserve diversification, and a weaker dollar are unlikely to change in the medium term.”
Russia has by no means been the only beneficiary of gold’s price surge. China has also hugely boosted its reserves in recent years and has the seventh largest hoard in the world.
Meanwhile, the US remains the world’s largest gold holder with 8,133 tonnes, now valued at $1.04tn (£776bn). It is the first time any nation’s reserves have surpassed the one trillion US dollar threshold.
Britain’s stockpile is pitifully small by comparison. The Bank of England holds 310.3 tonnes of gold in its reserves, worth around $40.1bn. Its haul could have been worth much more but for Gordon Brown’s decision as chancellor in 1999 to sell half of Britain’s reserves, fetching just $3.5bn by 2002.
Mr Trump has been exerting fresh economic pressure on Russia in recent months in an effort to pressure Putin into peace. However, the Russian president will be able to rely on rising gold prices for a while to come, according to Wall Street’s biggest banks.
Goldman Sachs this week forecast bullion would reach $4,900 an ounce by December next year, up from its previous estimate of $4,300. It expects this 23pc rally to largely be fuelled by central banks, with emerging markets particularly “likely to continue the structural diversification of their reserves into gold”.
Yet not everyone is convinced that gold’s winning streak can last forever. Joost van Leenders, of private bank Van Lanschot Kempen, says gold is now “extremely expensive” compared to other assets like bonds or oil.
“Gold is an interesting investment at times of uncertainty, but given its high price, a large amount of uncertainty and/or lower interest rates have already been priced in,” he says.
Osman, of Arbuthnot Latham, adds that gold has “broken away from many of its long-term fundamental relationships”, suggesting the market may be acting irrationally. “Its extended rally this year could quite easily be met with a near-term correction,” he says.
None of that will be of much concern in the Kremlin. Barring a catastrophic and historic price crash, Putin will still have hundreds of billions of dollars worth of bullion to draw on. |
