Posted on 04/03/2022 4:56:06 AM PDT by blam
With Russia’s central bank having just profoundly altered the international trade and monetary system by linking the Russian ruble to both gold and commodities, journalists in Moscow asked me to write a Q and A article on what these developments mean, and the ramifications of these changes on the Russian ruble, the US dollar, the gold price and the global system of currencies. This article has been published on the RT.com website here.
Since RT.com is now blocked and censored in many Western locations such as the EU, UK, US and Canada, and since many readers may not be able to access the RT.com website (unless using a VPN), my Questions and Answers that are in the new RT.com article are now published here in their entirety.
Who would have thought that citizens of ‘free speech’ Western countries would need a VPN to read a Russian news site?
Why is setting a Fixed Price for Gold in Rubles significant?
By offering to buy gold from Russian banks at a fixed price of 5000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar.
We can see this linkage in action since Friday 25 March when the Bank of Russia made the fixed price announcement. The ruble was trading at around 100 to the US dollar at that time, but has since strengthened and is nearing 80 to the US dollar. Why? Because gold has been trading on international markets at about US$ 62 per gram which is equivalent to (5000 / 62) = about 80.5, and markets and arbitrage traders have now taken note, driving the RUB / USD exchange rate higher.
So the ruble now has a floor to the US dollars, in terms of gold. But gold also has a floor, so to speak, because 5000 rubles per gram is 155,500 rubles per troy ounce of gold, and with a RUB / USD floor of about 80, that’s a gold price of around $1940. And if the Western paper gold markets of LBMA / COMEX try to drive the US dollar gold price lower, they will have to try to weaken the ruble as well or else the paper manipulations will be out in the open.
Additionally, with the new gold to ruble linkage, if the ruble continues to strengthen (for example due to demand created by obligatory energy payments in rubles), this will also be reflected in a stronger gold price.
What does this mean for Oil?
Russia is the world’s largest natural gas exporter and the world’s third largest oil exporter. We are seeing right now that Putin is demanding that foreign buyers (importers of Russian gas) must pay for this natural gas using rubles. This immediately links the price of natural gas to rubles and (because of the fixed link to gold) to the gold price. So Russian natural gas is now linked via the ruble to gold.
The same can now be done with Russian oil. If Russia begins to demand payment for oil exports with rubles, there will be an immediate indirect peg to gold (via the fixed price ruble – gold connection). Then Russia could begin accepting gold directly in payment for its oil exports. In fact, this can be applied to any commodities, not just oil and natural gas.
What does this mean for the Price of Gold?
By playing both sides of the equation, i.e. linking the ruble to gold and then linking energy payments to the ruble, the Bank of Russia and the Kremlin are fundamentally altering the entire working assumptions of the global trade system while accelerating change in the global monetary system. This wall of buyers in search of physical gold to pay for real commodities could certainly torpedo and blow up the paper gold markets of the LBMA and COMEX.
The fixed peg between the ruble and gold puts a floor on the RUB / USD rate but also a quasi-floor on the US dollar gold price. But beyond this, the linking of gold to energy payments is the main event. While increased demand for rubles should continue to strengthen the RUB / USD rate and show up as a higher gold price, due to the fixed ruble – gold linkage, if Russia begins to accept gold directly as a payment for oil, then this would be a new paradigm shift for the gold price as it would link the oil price directly to the gold price.
For example, Russia could start by specifying that it will now accept 1 gram of gold per barrel of oil. It doesn’t have to be 1 gram but would have to be a discounted offer to the current crude benchmark price so as to promote take up, e.g. 1.2 grams per barrel. Buyers would then scramble to buy physical gold to pay for Russian oil exports, which in turn would create huge strains in the paper gold markets of London and New York where the entire ‘gold price’ discovery is based on synthetic and fractionally-backed cash-settled unallocated ‘gold’ and gold price ‘derivatives.
Russian gold bars stored in wooden boxes in the Gokhran vaults, Moscow
What does this mean for the Ruble?
Linking the ruble to gold via the Bank of Russia’s fixed price has now put a floor under the RUB/ USD rate, and thereby stabilized and strengthened the ruble. Demanding that natural gas exports are paid for in rubles (and possibly oil and other commodities down the line) will again act as stabilization and support. If a majority of the international trading system begins accepting these rubles for commodity payments arrangements, this could propel the Russian ruble to becoming a major global currency. At the same time, any move by Russia to accept direct gold for oil payments will cause more international gold to flow into Russian reserves, which would also strengthen the balance sheet of the Bank of Russia and in turn strengthen the ruble.
Talk of a formal gold standard for the ruble might be premature, but a gold-backed ruble must be something the Bank of Russia has considered.
What does this mean for Other Currencies?
The global monetary landscape is changing rapidly and central banks around the world are obviously taking note. Western sanctions such as the freezing of the majority of Russia’s foreign exchange reserves while trying to sanction Russian gold have now made it obvious that property rights on FX reserves held abroad may not be respected, and likewise, that foreign central bank gold held in vault locations such as at the Bank of England and the New York Fed, is not beyond confiscation.
Other non-Western governments and central banks will therefore be taking a keen interest in Russia linking the ruble to gold and linking commodity export payments to the ruble. In other words, if Russia begins to accept payment for oil in gold, then other countries may feel the need to follow suit.
Look at who, apart from the US, are the world’s largest oil and natural gas producers – Iran, China, Saudi Arabia, UAE, Qatar. Obviously, all of the BRICS countries and Eurasian countries are also following all of this very closely. If the demise of the US dollar is nearing, all of these countries will want their currencies to be beneficiaries of a new multi-lateral monetary order.
“It was once said that ‘gold and oil can never flow in the same direction’.”
What does this mean for the US Dollar?
Since 1971, the global reserve status of the US dollar has been underpinned by oil, and the petrodollar era has only been possible due to both the world’s continued use of US dollars to trade oil and the USA’s ability to prevent any competitor to the US dollar.
But what we are seeing right now looks like the beginning of the end of that 50-year system and the birth of a new gold and commodity backed multi-lateral monetary system. The freezing of Russia’s foreign exchange reserves has been the trigger. The giant commodity strong countries of the world such as China and the oil exporting nations may now feel that now is the time to move to a new more equitable monetary system. It’s not a surprise, they have been discussing it for years.
While it’s still too early to say how the US dollar will be affected, it will come out of this period weaker and less influential than before.
What are the Consequences of these Developments?
The Bank of Russia’s move to link the ruble to gold and link commodity payments to the ruble is a paradigm shift that the western media has not really yet been grasped. As the dominos fall, these events could reverberate in different ways. Increased demand for physical gold. Blowups in the paper gold markets. A revalued gold price. A shift away from the US dollar. Increased bilateral trade in commodities among non-Western counties in currencies other than the US dollar.
It means... If you have a couple of suitcases full of Ruble’s, you might get about an ounce of gold. Bite into it real hard though... It may be phony gold.
“What is it about gold, that causes humanity to seek it, hoard it, and value it?”
It’s pretty...and it’s ductile, so it’s easy to form into what shape you like, such as idols.
It’s pretty, and relatively rare.
That’s about it.
For my feeble mind, a material must have some underlying value/utility. Pretty has little value when you are starving.
Yeah the population of the EU is growing. By flooding in Africans and Moslems who then breed like flies. But the kind of population growth you want.
Not really. At the current rate it means the average Russian salary in rubles is worth an ounce of gold every 3 months. Not a wheelbarrow currency because their national debt is so low. They have prepped for this moment.
1st world military ??
Looks pretty 3rd world to me based on what I’ve been reading.
Just about any story that has the word paradigm shift in it means it’s pretty much irrelevant.
“what exactly does “linking” a currency to gold mean? that you can walk into any bank in that nation and use their worthless currency to buy gold at a fixed rate? if so,they’d run out of gold reserves in a day or two”
Correct you realize exactly the problem none of the gold bugs have.
Under the current set-up you can turn a billion in USD into 80 billion rubbles. You can then exchange those rubbles for gold worth 1.05 billion USD.
An instance $50 million profit for draining the Russian gold reserves by $1 billion.
The is a vicious circle that makes a gold pin impossible. The rubble will always trade at a discount to actual gold because there is not 100% trust Russia can keep the gold standard. There is not 100% trust because the discounted price incentivizes permanent drain on reserves.
Exact same scenario that caused Argentina’s dollar pin or the UK Deutschmark pin to fail catastrophically.
Texas has it’s own gold repository.
Texas is one of the strongest oil producing states, rivaling many countries.
Yes, Xi-O’Biden and his #ComDem supporters hate Texas.
The greenies are spitting in the wind with the idea of alternative energy replacing fossil fuel.
The laws of physics have not changed. And they overrule the #ComDem_Insanity coming out of DC and the Globalist pukes.
The petro dollar is on its last gasp. This is the start of the QFS system. The US will soon be on a new gold backed US note. Our banks are quietly preparing for the transition. Its a good thing.
If you are going to buy a crypto currency buy XRP. I have heard its the only crypto that will be allowed on the QFS system. It won’t be used as a currency but a transfer mechanism.
You can grab gold nuggets from the Feather River every weekend and make $30,000 a month if you know where to look. Every year new gold gets washed into the river.
Oh really? You don't say?
Trollin', trollin', trollin'...
Oh really? You don't say?
Trollin', trollin', trollin'...
So good you had to post it twice. 😆
Gold embellishes wealth, thereby granting it a value commensurate with wealth, as does slavery.
Think of the Inca golden idols, mostly melted down by Spanish. For the Portuguese gold and slaves were their most precious commodity for international trade in the 14 and 15 centuries.
The abandonment of slavery was fueled by the industrial revolution creating a serf class with stable income.
Today we are experiencing the purposeful destruction of the middle class which grew strong as the labor class following WWII.
A middle class drains power and wealth from the upper class. Only slavery provides unlimited wealth to the upper class. Gold is the standard of that wealth. As the enslavement of the middle to lower class continues, we will soon begin to see the embellishment of wealth by gold.
In the beginning; In a pre-technological world native gold was ductile and malleable without refining so would be one of the first metals used, the starting point of its value. (Fashioning objects from metal stand at the beginnings of Technolgy!) Gold reflects light so stands out from other rocks; it is a sun like color so would be attractive to early man. That usefulness and scarcity lead to it being a medium of exchange between different cultures. That continuum of golds value persists, although not to the same level as previous ages.
Note that gold is not just attractive to pre-technolgical man.
https://physics.stackexchange.com/questions/74412/why-does-nasa-use-gold-foil-on-equipment-and-gold-coated-visors
"To control the surface temperature of an object that is exposed to IR (heat waves), NASA wraps its equipment with a metallic reflector that reflects IR to keep it from getting “hot.” The common reflectors are aluminum, silver, copper, and gold. Below, the plot of reflectance vs. wavelength shows that all four metals are good IR-reflectors since the reflectance is close to 100% for wavelengths greater than 700 nm (λ ≥ 700 nm).
So why use gold? It’s most likely the same reason why they use gold extensively in circuit boards. (i) Gold does not corrode or rust while silver and copper do, which would reduce reflectance (by the way this happens before takeoff) and (ii) it’s a lot easier to work with gold than aluminum."
Finally, Women find it pretty, so men find it to find pretty women! :)
Remeber what happened to Qaddafi when he went to the gold standard?
The only reason the US does not have a declining population is we import breeders from Mexico and South America.
In theory, the USA could also have a gold-backed currency - we are a huge economy, a highly productive economy, and large population.
EXCEPT for the fact that we are heavily in debt and our woke-leftist-social-engineering ruling class absolutely depends on printed fiat and massive debt to keep woke-America afloat.
Therefore, they will fight tooth-and-nail to preserve the fiat US dollar. They will print like mad. They will attack anyone who proposes a gold-backed currency, including Russia. They will also impose fascism/marxism in the USA.
Exactly.
The positive thing about that is they're not Moslems like most of the immigrants to Europe.
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