Putin’s gold strategy explains why sanctions failed

There are more than 16,000 sanctions imposed against Russia. Yet the Russian economy and war machine grew by 3.6% in 2023 and is projected to grow another 2.6% in 2024.

Nearly six per cent of Russia’s gross domestic product goes towards military spending. At a time when Ukrainian President Volodymyr Zelensky is scrambling to acquire arms, funds and recruits, Vladimir Putin seems confident in his ambitions for the future.

How have 16,000 strategic sanctions issued by some of the most powerful economies in the world failed to derail Putin?

As I recently watched the news break on CBC about Russia’s robust economy, an advertisement from the World Gold Council popped onto the screen. And there was the answer, hiding in plain sight: Gold.

The role of gold

Sanctions against Russia needed to be strategic, targeting the environment it operates in.

Economic sanctions targeted shipping and trade into Russia, but the gold market is a massive environment left largely untouched. After Russia invaded Ukraine two years ago, the United Kingdom, a major gold broker with one of the world’s largest gold reserves, cut all Russian imports of gold into the UK.

According to the World Gold Council, Russia is now the second largest producer of gold at 324.7 metric tons in 2023, behind China at 374 million. Russia is expected to increase production of gold by four% a year until 2026.

Russia had been preparing for western sanctions since 2013and managed to isolate its economy from transactions requiring American dollars.

In early 2022, Russia pegged its currency, the ruble, to gold, and 5,000 rubles will now buy an ounce of pure gold. The plan was to shift the currency away from a pegged value and into the gold standard itself so the ruble would