Putin's Fascinating Bet
Russia is reeling. GDP is down nearly 9% year-over-year. The ruble has lost a third of its value since September. Unemployment is rising so quickly, protests and riots are breaking out. And yet, Prime Minister Vladimir Putin assures his supporters that “no catastrophe” is in view in 2009.
What makes him so confident?
The answer might lie in a fascinating article in the Moscow Times, an English-language daily. Now I can’t speak to the publication’s credibility; according to Wikipedia, it’s under foreign ownership and isn’t afraid to take an anti-Kremlin line. But the Wikipedia article is thin, to say the least. So if all of what follows turns out to be a crock, I won’t be too surprised. But it’s too intriguing to ignore.
The paper reports the president of Sakha Republic, in Siberia, came calling on Putin recently. Vyacheslav Shtyrov brought ill tidings: The swoon in world energy markets has hit Sakha hard. But rather than continue to paraphrase the article, l’ll let the rest of the story unfold on its own:
Sakha is having trouble keeping up with its investment goals for 2020 and the region’s labor market is suffering, Shtyrov said at the meeting.
Putin listened and then took a breath.
“Vyacheslav Anatolyevich,” he said, addressing him by his patronymic, “the global prices of coal, gas, metals and even diamonds have fallen. But the price of gold is rising — and gold is mined on your territory.”
When Shtyrov called attention to miners’ problems with creditors, he was once again rebuffed. “We’ll solve the problem with gold mining,” Putin said. “Especially since — I’ll say it again — I’m well aware that the price of gold is rising on world markets.”
The paper attributes this account to a transcript of the meeting released by the Kremlin. Assuming this is correct, and the transcript is accurate, Putin is making a remarkable bet here, not just for Sakha, but for his whole country: What low energy prices have taken away, high gold prices will restore.
According to the article, Russian mining firms have been at least as attractive since last fall as names more familiar to Western goldbugs’ ears. Shares in Polyus Gold have risen 172% since bottoming on November 18; Polymetal is up 207% since its low on November 20. By comparison, the HUI index is up a little under 80% since its lows last October, the XAU up a little over 65%.
I have no idea whether Putin’s big bet is true, or whether it’s plausible. But it’s out there. And it’s fascinating.