iSectors: How Russia’s Fight Against Global Sanctions is Impacting Inflation

(Vern Sumnicht, iSectors) Russia’s has recently linked the country’s currency with gold, 5000 rubles = 1 gram of gold or 140,000 rubles per ounce (5000 x 28 grams per ounce). If one dollar equals 83 rubles (as of 4/4/2022), then gold purchased with rubles costs $1,687 per ounce (140,000/83) versus the current market spot price of $1,940 per ounce. Russia is only a buyer of gold at 5000 rubles per gram not a seller at this point.

In addition to offering to buy gold with rubles, Russia has also recently announced that they will not accept dollars in exchange for oil and gas. Russia will only accept rubles in exchange for oil and gas. This is likely because sanctions won’t allow Russia to exchange dollars for rubles therefore, Russia wants buyers to exchange dollars for rubles or use gold to purchase oil and gas.  Russia is the third largest producer of oil and the largest producer of natural gas. Russia knows the world’s inflation will skyrocket without Russian oil and gas. Is Russia calling NATO’s bluff, so to speak?  Despite the rhetoric by politicians, they seem to believe that the world will continue to purchase Russian oil and gas.

Perhaps, Russia is also challenging the value (purchasing power) of the U.S. dollar by announcing they won’t accept dollars in exchange for Russian oil and gas? Many countries have expressed concerns about the world’s reserve currency (the U.S. dollar) irresponsibly printing money and increasing their debt. This destroys the purchasing power of the U.S. dollar (increases inflation). Russia’s debt is only 15% of Russia’s GDP. The U.S. debt is 125% of GDP.

Remember the only thing backing fiat currencies like the U.S. dollar is trust. If Putin successfully undermines trust in the dollar, it is tantamount to an attack on the U.S. dollar’s status as the world’s reserve currency.

Should the dollar lose its status as the world’s reserve currency, dollars will come flooding back to the U.S. (as other countries sell them) increasing inflationary pressures. Protecting the purchasing power of at least a portion of your investment portfolio would be prudent.  The best investments to preserve purchasing power are real assets, gold, silver, land, Bitcoin, etc.

Want to talk to Vern's team about any of the topics raised here and how they might impact your client plans? They're RIGHT HERE. Or just visit the iSectors profile on the Digital Dashboard.

Learn more about several investment strategies that effectively address some of the inflation risks mentioned above, such as iSectors Inflation Protection Allocation, iSectors Precious Metals Allocation or iSectors CryptoBlock™ Allocation and how these allocations can serve as an inflation hedge.