Russia has quietly made the case for owning gold.
The head of the Russian Parliament, Pavel Zavalny, made comments recently addressing the subject of economic and financial sanctions. It’s clear that gold is playing a large role in protecting Russian wealth. That role may get bigger and it could create a paradigm shift in how the world does business.
Russia has a lot of natural gas and oil. And it sells a lot of natural gas and oil to the world. Zavalny made it clear that Russia is happy to sell — in hard currency. And what is hard currency? Not dollars.
If they want to buy, let them pay either in hard currency, and this is gold for us, or pay as it is convenient for us, this is the national currency. As for friendly countries, China or Turkey, which are not involved in the sanctions pressure. We have been proposing to China for a long time to switch to settlements in national currencies for rubles and yuan. With Turkey, it will be lira and rubles. The set of currencies can be different and this is normal practice. You can also trade bitcoins.”
Zavalny said Russia has no interest in dollars, saying “this currency turns into candy wrappers for us.”
In an op-ed published by MarketWatch, Brett Arends said this might not mean anything. But it could mean a lot if other countries like China and India follow Russia’s lead. As Arends notes, a lot of countries aren’t thrilled with the United Sates’ ability to control the global financial system with a monopoly on the reserve currency.
Arends also says this adds to the argument for having gold in a long-term investment portfolio.
Not because it is guaranteed to rise, or maybe even likely to. But because it might — and might do so while everything else went nowhere, or went down. Like in a geopolitical or financial crisis where the non-western bloc decides to challenge America’s financial hegemony and ‘king dollar.'”
Arends calls himself “gold agnostic,” but he said there is no question “it has its uses.”
Gold is completely private. It is completely independent of the SWIFT or any other banking system. And despite the rise of cryptocurrencies, it remains the most widespread and viable global currency that is not controlled by any individual country.”
Moves made by Russia in recent weeks could represent a huge paradigm shift in global finance. Many countries have been building toward this for years as the US has weaponized the dollar.
In effect, Russia put the ruble on a gold standard that is now linked to natural gas.
Russia holds the fifth-largest gold reserves in the world. After pausing during the COVID-19 pandemic, the Central Bank of Russia resumed gold purchases in early March before suspending them again a couple of weeks later. The Russian central bank resumed buying gold from local banks on March 28 at a fixed price of 5,000 roubles ($52) per gram.
Since Russia is insisting on payment of natural gas in rubles and they’ve linked the ruble to gold, natural gas is now indirectly linked to gold. The Russians can do the same to oil, as ZeroHedge explained.
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.”
So, 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.”
We could be seeing a slow unwinding of the petrodollar. And the petrodollar is one of the foundations of the dollar’s position as the world currency. We’ve already heard rumblings of Saudi Arabia accepting yuan for oil.
The US and other western powers have tried to lock down Russia’s gold. But as Arends explains, that is virtually impossible in effect.
Despite some laughable suggestions that the West might somehow sanction ‘Russian gold,’ there is no way of tracing the identity, nationality, or provenance of bullion. American Eagle coins or South African Krugerrands can be melted down into bars. Gold is gold. And someone will always take it. Carry a Krugerrand to any major city anywhere in the world and you will find people willing and eager to take it off your hands in return for any other currency you want.”
At the current price, the world’s gold supply is valued at about $13 trillion. Can you imagine where that price would go if gold once again became the global reserve currency? Or even if it plays a more prominent role in the sale of oil and natural gas.
Given gold’s position in the world financial system, it just makes sense to own some in your portfolio. Arends said, “the argument isn’t that we want to own all gold or mostly gold or even a lot of gold, but that we want at least to own some gold, simply for diversification.”