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.
I know a guy in San Jose who sold his asphalt paving business and moved to gold country. All he does now is pan for gold.
Bookmark for later reading
If he demands payment in Rubles and backs those rubles with gold at $59 per gram then the petrodollar is dead.
Fiat currency always inflates itself into oblivion because politicians are greedy and stupid.
That’s like the assertion that everything has value, which is true but what’s easier to transport, trade and maintain its value for the receiver? Someone else on the Board mentioned having extra ammunition in popular calibers and alcohol for barter.
Are you kidding? Spain is evaporating. China has a declining population, and so does India. Every single Euro country has catastrophic levels of population decline. See Peter Zeihan, “The Accidental Superpower.”
And no, the Russkies haven’t failed in Ukraine. They have exactly what they want, and are on the verge of annihilating the actual combat forces of Ukraine in Donbas.
Read Bill Roggio’s analysis on Twit. The best out there.
Go with two other people, everyone has sidearms, and couple big dogs on the riverbank.
The white race everywhere would not need to import breeders if we did not retard reproduction by birth control and abortion.
Well....he got out of San Jose but not out of Kalifornia.
No they aren't. Certainly not the one I work for or any of the ones I work with. But then again we're not tied into Q-Anon.
Perfect reposte. Not that many of your intended targets would be able to to understand it. But that's Q for you lol.
Apparently Wells Fargo is. Some banks will not make the cut. Maybe yours or maybe not. Banks are already closing. Look for more of that going forward.
So you claim, apparently based on some retired law enforcement person who knew a guy who knew a guy. In fact I would expect that Wells Fargo would laugh at the idea of being connected with this fantasy.
Some banks will not make the cut. Maybe yours or maybe not.
What will be the deciding factor? Assets? Status within the Q-Verse?
It will take Russia decades to recover from Putin's screw-up... Literally decades.
The world will carry on as they did before Russia joined the rest of the world in the 1990s, in the rich and wealthy lifestyle they've always enjoyed... My sympathy to any Russian's who have been dupped and hoodwinked by Putin... You will suffer for many many years to come, so enjoy your loaf a bread and a potato once a week. Putin has taken you back to the 'good' old days... Apparently, somebody forgot what the 'good' old days were really like.
My understanding is asset reserves.
Since the Fed specifies reserve ratios then most banks are going to have about the same reserve amounts depending on assets.
Last I looked Spain was very much a part of Europe.
Current pop growth of China = down as is its actual pop. https://worldpopulationreview.com/countries/china-population
Current pop growth of India = down as is its actual pop.
https://worldpopulationreview.com/countries/india-population
Russia’s pop has actually leveled off (unlike India and China) , though its growth rate is still way down
https://worldpopulationreview.com/countries/russia-population
Guess who is absolutely collapsing even before the invasion? Ukraine
https://worldpopulationreview.com/countries/ukraine-population
Poland: collapsing https://worldpopulationreview.com/countries/poland-population
Germany=stabilizing
https://worldpopulationreview.com/countries/germany-population
France=slightly recovering
https://worldpopulationreview.com/countries/germany-population
Finland=stabilizing but after a horrid collapse
https://worldpopulationreview.com/countries/finland-population
In short, Russia looks like almost every other country, a little worse than most, about the same as Spain, Poland, Ukraine, Finland
NO ONE except Muslim nations is seeing actual population growth.
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