02/12/2013 07:48 am ET Updated Apr 14, 2013

Putin's Russia Now World's Largest Gold Bullion Buyer -- Why?

On February 10 Bloomberg reported that "Putin Turns Black Gold Into Bullion as Russia Out-Buys World," advising that the world's largest oil producer's central bank has added some 570 metric tons of gold over the last several years for a total inventory of 958 tons. This while the likes of Switzerland, France and the Netherlands were selling significant quantities of their gold holdings.

According to the article, there has been a long tradition of gold-buying/hoarding in Russian history going back to the time of Tsar Alexander II who ordered the government to start amassing gold bullion in 1867. Interestingly, the timing was almost concurrent to Russia's sale of Alaska to the United States for $7.3 million.

Yet purchases of gold under Putin have intensified to the point that Russia, as a matter of national policy and strategy, has surpassed all others in its tempo of gold accumulation. All of which then raises the question of why?

When Putin tells the central bank "to buy," does he know something that the rest of us do not or can only guess? Certainly there is Putin's predilection, which he has made generally known, that he views the U.S. as endangering the global economy by abusing the dollar. Or as Putin's political ally Evgeny Federov is quoted in the article, "The more gold a country has, the more sovereignty it will have if there is a cataclysm with the dollar, the pound or any other reserve currency."

All that certainly sounds reasonable enough given the propensity of central banks throughout the world to print their way out of the current financially orchestrated economic morass.

But is there something else in play? Some two years ago, the U.S. Commodities Futures Trading Commission fined the commodities trading house Conagra $12 million because one of its traders at the time, with but a single trade, purposely pushed the price of oil to $100/bbl for no other reason than being the first to make this historic vanity trade.

CFTC Sanctions ConAgra Trade Group, Inc. $12 Million for Causing a Non-Bona Fide Price to Be Reported in the NYMEX Crude Oil Futures Contract:

Aug 16, 2010 - U.S. Commodity Futures Trading Commission ... announced the filing and simultaneous settlement of charges against ConAgra Trade Group, ...

The trader achieved this milestone by buying a single 1,000 barrel contract on the commodities exchange, requiring a deposit of but $6,500, thereby advancing the quoted price for oil by some 25 cents/bbl to reach the first fabled $100/bbl print.

Consider that if the price of oil can be moved by a single trader, needing only some $6,500 as margin, what can be achieved on our pliable Commodity Exchanges with a trading war chest holding hundreds of millions if not billions?

In this space early last year, I wrote "Oil Embargoes, Sherlock Holmes and the Russian Butler" (02.20.2012), which touched on the importance of oil and, manifestly, its price, to Russia's economy being so deeply dependent on the revenues derived from the sale of its oil and gas. It posited the following:

We have a Russia that is governed by a coven comparable to our Wall Street "ole boys network," namely the alumni of Russia's highly touted secret service, the KGB. The KGB helped form Putin and many of his associates in government. Here was an organization that was the nonpareil master of clandestine intrigue, knowing how to keep secrets. Now in a sense, it is running the country albeit with the trappings of democratic governance.

Given the stakes at hand, would it be a real surprise that with its wealth and given the economic and strategic importance of oil revenues to Russia's well being, and with the talent at hand, that Russia is doing whatever it can to keep the price of oil high and ever higher still?

Very probably, it is not the concern of the collapse of the dollar and other reserve currencies that is motivating Putin to gobble gold, but the core knowledge that the current price of oil is a manipulated mirage aided by his minions and some day, whether sooner or later, will collapse upon itself. That the trading at the Commodity Exchanges' oil derivatives casinos, where the price of crude oil is currently pegged, is a rigged game. (please also see "The Oil Market Plays Casino While the Obama Administration Acts as Croupier" 09.10,11). Now while the going is good, and the price of oil is high, is the moment to pile in the gold because the mirage will eventually implode because it has no foundation in an unencumbered and freely traded marketplace.