(Kitco News) – Russia’s President Vladimir Putin’s war in Ukraine has caused significant moves in major commodities. Since the invasion of Ukraine on the 24th of February, the prices of oil, gold, uranium, and even soft commodities like wheat have all rallied.
Although a diplomatic resolution to this conflict will most likely be reached, the war will leave a deep impact on markets for years to come, according to Rick Rule, director of Sprott U.S. Holdings.
Speaking to Michelle Makori, Editor -in-Chief of Kitco News, Rule said that it’s only a matter of time before Russia runs out of resources to continue a protracted war.
“I think Putin probably believes that his hand was forced into that circumstance, and I think that he has been surprised by the lack of conventional capabilities enjoyed by the Russian forces. I think too that Mr. Putin, as a politician, didn’t understand enough about the Russian economy to understand the real pain and the fact that he will, sooner rather than later, be unable to afford this war,” Rule said. “I’m reminded of less combatants, which is to say Eritrea and Ethiopia…their war 15 or 20 years ago ended because neither side could pay the gasoline bill. They literally ran out of fuel.”
Billionaire investor Bill Ackman recently said that World War Three has “likely already started” and that we are in the early innings of Putin’s “global aspirations. Citing his move into Georgia in 200, followed by his annexation of Crimea in 2014, Ackman says that with each ‘victory,’ Putin is emboldened to take more. “He is testing us, and we are failing the test each time.”
However, Russia simply does not have the means to escalate this war much further, let alone fight a global war, Rule said.
“I suspect that the exiling of Russia from the SWIFT system and the inability to do what they do well, sell raw materials to the developed world, means that the economic dislocations that he faces, including the ability to wage World War Three, are much more constrained than maybe Mr. Ackman believes,” he said.
In fact, there has been speculation that in order to finance this war, Russia President Vladimir Putin would have to sell the country’s gold reserves.
Russia currently holds roughly $132 billion worth of gold, nearly 2,300 tonnes, making it the fifth-biggest sovereign gold reserve in the world, according to the IMF.
In anticipation of a possible move by Russia to sell gold to fund further war efforts, on Tuesday, a group of bipartisan U.S. senators announced that they are introducing a bill that would curb Putin’s ability to liquidate his country’s gold reserves by deterring potential buyers . The legislation would apply restrictions on American entities making gold transactions with Russia’s central bank holdings.?
Still, Putin may have other potential buyers including India and China, should he need to sell gold to fund his military operations, and that would most likely cause a short term drop in the price of gold.
“The fact that [Putin] is frozen out of U.S.-dollar denominated trade on a global basis and frozen out of the SWIFT system is turning out to be a much bigger danger than he had thought, but it might be that the only fungible asset that he has for sale is gold. Irrespective of the difficulty, that might be the only thing that he could pay his bills with, in which case I would suspect that whether he wants to or not he would have to sell it,” Rule said.
Additionally, it would be difficult to actually enforce any such ban on the buying of Russian gold, Rule added.
“I don’t think that the United States Congress has the ability to constrain liquid global trade in a commodity that is as liquid and as fungible as gold. In other words, they can say a bunch of stuff, I don’t think they can do much,” he said.
On where the gold price is headed, Rule noted that historically, when gold and the U.S. dollar rally in tandem, that has usually been followed by much stronger gold prices to come.
Rule said that in past bull cycles, gold has climbed at least seven-fold, and that it is very likely that gold will double or triple by five years’ time.
For more information on uranium, oil and Rule’s stock picks, watch the interview above.
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