Latest / DEEP INSIGHT / Putin is selling off Russia's gold. Is the war economy losing steam

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Putin is selling off Russia's gold. Is the war economy losing steam · DEEP INSIGHT

• 0:00
  Speaker 1: Russia has started selling gold from its official reserves. About
• 0:04
  Speaker 1: forty four tons disappeared from the Central Bank's reported stock
• 0:07
  Speaker 1: in the first half of twenty twenty six. Does this
• 0:10
  Speaker 1: mean that Vladimir Putin is running out of money for
• 0:12
  Speaker 1: the war in Ukraine. No, but it does mean Russia
• 0:16
  Speaker 1: has started using a financial cushion that was built to
• 0:18
  Speaker 1: protect it from exactly this kind of pressure. The gold
• 0:21
  Speaker 1: sale is not a signal of immediate bankruptcy, but rather
• 0:25
  Speaker 1: a warning sign.
• 0:26
  Speaker 2: The Kremlin doesn't want that buffer to go down because,
• 0:29
  Speaker 2: of course that lead would lead to maybe more speculation
• 0:33
  Speaker 2: about financial crisis or economic difficulties, and it would undermine
• 0:38
  Speaker 2: the Kremlin's geopolitical position it likes to portray. The country
• 0:42
  Speaker 2: has been very stable and very strong.
• 0:48
  Speaker 1: First, keep the sale in perspective. It was less than
• 0:51
  Speaker 1: two percent of Russia's gold. The country still has one
• 0:54
  Speaker 1: of the largest official gold stocks in the world. What
• 0:56
  Speaker 1: matters is the change in direction. Russia had spent years
• 1:01
  Speaker 1: buying gold as an insurance policy after earlier rounds of
• 1:04
  Speaker 1: Western sanctions. Moscow deliberately reduced its reliance on dollars and
• 1:08
  Speaker 1: built up assets that it could control at home. Gold
• 1:11
  Speaker 1: was central to that strategy. Now it's drawing down on
• 1:15
  Speaker 1: that insurance. Gold matters because much of Russia's foreign money
• 1:19
  Speaker 1: is frozen by Western sanctions. But the bars in its
• 1:22
  Speaker 1: vaults it can use those when tax revenue and borrowing
• 1:25
  Speaker 1: not enough to cover its spending. Now bear with me,
• 1:33
  Speaker 1: because there is one financial detail we need to understand.
• 1:36
  Speaker 1: Russia's rainy Day Fund holds some of its savings in
• 1:39
  Speaker 1: gold and Chinese currency at the central Bank. When the
• 1:42
  Speaker 1: government needs money, the Bank of Russia exchanges some of
• 1:45
  Speaker 1: those assets for rubles. The central Bank then sells the
• 1:49
  Speaker 1: same value of gold or Chinese currency on the Russian market.
• 1:53
  Speaker 1: So don't expect to see a receipt showing forty four
• 1:56
  Speaker 1: tons of gold buying tanks and missiles. So what does
• 1:59
  Speaker 1: it actually tell us?
• 2:01
  Speaker 3: Most importantly, it tells us about the need to finance
• 2:04
  Speaker 3: budget deficit. The fact that they're selling gold means that
• 2:08
  Speaker 3: they're running out of other more liquid assets in that fund,
• 2:12
  Speaker 3: So there is a pressure on the deficit and also
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  Speaker 3: pressure on the sources to finance this deficit.
• 2:17
  Speaker 1: What this fund shows us is that Russia's readily spendable
• 2:20
  Speaker 1: portion has shrunk by roughly three quarters since the invasion
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  Speaker 1: of Ukraine began. This was the reserve Moscow could tap
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  Speaker 1: quickly when oil income fell or the budget came under pressure.
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  Speaker 1: It helped the Kremlin present Russia as a country that
• 2:33
  Speaker 1: could withstand sanctions at a long confrontation with the West.
• 2:37
  Speaker 1: And that cushion is much smaller than it was four
• 2:40
  Speaker 1: years ago, and rebuilding it in wartime conditions is extremely difficult.
• 2:45
  Speaker 1: The fund itself is actually bigger overall, but much of
• 2:48
  Speaker 1: that is already tied up in projects, bank deposits. Basically,
• 2:52
  Speaker 1: it can't just be converted into cash, and Russia has
• 2:55
  Speaker 1: a growing bill to pay. The federal budget deficit wide
• 2:59
  Speaker 1: and sharply. In the first half of this year, it
• 3:01
  Speaker 1: was already larger than the government had originally planned for
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  Speaker 1: the entire year. The direction is clear. Spending is rising
• 3:09
  Speaker 1: faster than revenue. The war is, of course a major reason.
• 3:13
  Speaker 1: Russia is devoting a huge share of its economy to
• 3:16
  Speaker 1: paying the military. Paying for soldiers, AMMO factories, compensation for casualties,
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  Speaker 1: and the replacement of equipment all difficult for the Kremlin
• 3:26
  Speaker 1: to cut while the fighting continues. So where is the
• 3:29
  Speaker 1: limit on paying that bill?
• 3:31
  Speaker 3: The real limit comes from Russia's ability to sell its
• 3:34
  Speaker 3: natural resources oil and gas to the international markets, because
• 3:37
  Speaker 3: everything hinges on that. When the oil price is high,
• 3:40
  Speaker 3: Russia gets revenues, it's easier to borrow. Its domestic financial
• 3:44
  Speaker 3: system is more healthy. If the oil price drops, say
• 3:47
  Speaker 3: to sixty or forty, then you immediately have a crisis.
• 3:51
  Speaker 1: At the same time, oil and gas revenue has become
• 3:53
  Speaker 1: less reliable. Higher oil prices can still give Moscow a
• 3:57
  Speaker 1: sudden windfall, as they did during the conflict in the
• 3:59
  Speaker 1: Middle East, but that cuts both ways. A fall in
• 4:02
  Speaker 1: oil income can open up a hole in the budget
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  Speaker 1: just as quickly. None of this means the Russian economy
• 4:13
  Speaker 1: is about to collapse. It is still growing, just slowly.
• 4:17
  Speaker 1: Unemployment is extremely low. Factories are still producing weapons, But
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  Speaker 1: that apparent strength hides a different problem. If everyone is working,
• 4:26
  Speaker 1: then finding another engineer, welder, or driver becomes harder and
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  Speaker 1: more expensive. Russia is short of workers, borrowing is expensive,
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  Speaker 1: and wages arising faster than productivity. The economy is being
• 4:38
  Speaker 1: pushed hard to serve the war, meaning less spec capacity
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  Speaker 1: for everything else.
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  Speaker 2: There really are two economies in Russia. There's the economy
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  Speaker 2: that's dominated by the state, sector, and this has been
• 4:51
  Speaker 2: driven largely by military expending, military industry and industries and
• 4:55
  Speaker 2: the spin off from that. The rest of the economy
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  Speaker 2: is a disaster. Enterprises, the private sector all struggling badly.
• 5:04
  Speaker 1: The government could borrow more inside of Russia. It could
• 5:08
  Speaker 1: raise taxes, it could cut projects and accept higher inflation,
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  Speaker 1: but none of that removes the overall cost. More government
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  Speaker 1: borrowing means less money for private companies. Higher prices squeeze households, workers,
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  Speaker 1: and investment are pulled towards defense factories and away from
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  Speaker 1: civilian industry. Roads, hospitals, and schools and tech can all
• 5:29
  Speaker 1: lose out. The war can continue, but only if the
• 5:32
  Speaker 1: rest of the economy shoulders the burden. That's why you
• 5:35
  Speaker 1: can't count the economic cost in mere bars of gold
• 5:38
  Speaker 1: or piles of cash, rather in people and machines. The
• 5:43
  Speaker 1: government can create more rubles, but it cannot instantly create engineers,
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  Speaker 1: machine tools, or imported electronics. So what does this mean
• 5:55
  Speaker 1: for Ukraine. Russia occupies a large part of the southeast
• 5:58
  Speaker 1: of the country and the fight is still ongoing. The
• 6:01
  Speaker 1: gold sale isn't a sign that Russia is about to
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  Speaker 1: stop fighting, as it can keep asking the rest of
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  Speaker 1: its economy to take on that burden. Waiting for economic
• 6:10
  Speaker 1: collapse is not a strategy for ending the war, but
• 6:13
  Speaker 1: the financial pressure does weaken Russia's choices over time. That
• 6:17
  Speaker 1: thinner cushion makes Russia more vulnerable. Another fallen oil revenue
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  Speaker 1: would hurt more. A banking sector problem, new sanctions, or
• 6:25
  Speaker 1: an unexpected rise in war spending would all be harder
• 6:28
  Speaker 1: to absorb. None of these guarantee a change in Kremlin policy,
• 6:32
  Speaker 1: but they can reinforce one another, forcing harsher trade offs
• 6:36
  Speaker 1: between the military households and the rest of the economy
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  Speaker 1: to how much runway do you think Russia has left
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  Speaker 1: economically before it becomes too much of a strain and
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  Speaker 1: before it becomes a massive issue for Putin to decide
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  Speaker 1: whether he continues.
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  Speaker 2: The war or not.
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  Speaker 3: The issue here's allocation of resources. The question is how
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  Speaker 3: much pressure you want to use on the society, how
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  Speaker 3: much oppression you want to use in the society, because
• 7:02
  Speaker 3: you cannot give them money anymore. But of course Putin
• 7:04
  Speaker 3: can continue going for years in the current environment.
• 7:09
  Speaker 1: The forty four tons of gold are best understood as
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  Speaker 1: another flashing warning light on Putin's economic dashboard. The Kremlin
• 7:16
  Speaker 1: can probably keep the war machine running, but the price
• 7:19
  Speaker 1: it pays in return is a bigger burden on ordinary
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  Speaker 1: Russian families, businesses, and the country's economic future.