Gold-backed ruble could be a game-changer for Russia and the West – RT Business News

Tying currency to gold and energy is a paradigm shift for the global economy, a precious metals analyst tells RT

The Bank of Russia resumed gold buying this week, but more importantly the regulator is doing so at a fixed price of 5,000 rubles ($59) for 1 gram between March 28 and June 30, raising the possibility of Russia returning to the gold standard. for the first time in over a century.

If the country takes the next step, as was proposed this week, to sell its commodities in rubles, these combined moves could have huge implications for the ruble, the US dollar and the global economy.

For answers, RT spoke to precious metals analyst Ronan Manly of BullionStar Singapore.

— Why is it important to set a fixed price for gold in rubles?

By offering to buy gold from Russian banks at a fixed price of 5,000 rubles per gram, the Bank of Russia has both pegged the ruble to gold and, since gold is traded in US dollars, set a floor price for the ruble in dollar terms.

We can see this link in action since Friday, March 25, when the Bank of Russia announced the fixed price. 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 is trading in international markets at around US$62 per gram, which equates to (5,000 / 62) = around 80.5, and markets and arbitrage traders have now taken notice , causing the RUB/USD exchange rate to rise.

Thus, the ruble now has a floor against the US dollar, in terms of gold. But gold also has a floor, so to speak, because 5,000 rubles per gram equals 155,500 rubles per troy ounce of gold, and with a RUB/USD floor of around 80, that’s a price of gold around $1,940. And if the Western LBMA/COMEX paper gold markets try to drive down the price of gold in US dollars, they will also have to try to weaken the ruble, or paper manipulations will be out in the open.

Moreover, with the new link between gold and the ruble, if the ruble continues to strengthen (for example due to the demand created by the obligatory energy payments in rubles), this will also translate into a rise in the price of gold.

— What does this mean for oil?

Russia is the world’s largest exporter of natural gas and the world’s third largest oil exporter. We see right now that Putin is demanding that foreign buyers (Russian gas importers) have to pay for this natural gas in rubles. This immediately ties the price of natural gas to the ruble and (due to the fixed link to gold) to the price of gold. Thus, Russian natural gas is now linked via the ruble to gold.

The same can now be done with Russian oil. If Russia starts demanding payment for oil exports in rubles, there will be an immediate indirect peg to gold (via the ruble fixed price – gold connection). Russia could then begin to accept gold directly as payment for its oil exports. In fact, this can apply to all 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. tying the ruble to gold and then tying energy payments to the ruble, the Bank of Russia and the Kremlin are fundamentally changing the whole set of working assumptions of the global trading system while accelerating change in the global monetary system. This wall of buyers looking for physical gold to pay for real commodities could certainly torpedo and blow up the LBMA and COMEX paper gold markets.

The fixed peg between the ruble and gold puts a floor on the RUB/USD rate but also a quasi-floor on the price of gold in US dollars. But beyond that, the link between gold and energy payments is the main event. While the increased demand for rubles should continue to strengthen the RUB/USD rate and result in a rise in the price of gold, due to the fixed link between the ruble and gold, if Russia begins to accept the gold directly as payment for oil, then it would be a new paradigm shift for the price of gold since it would directly link the price of oil to the price of gold.

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 it should be a discounted offering from the current crude benchmark price to promote adoption, e.g. 1, 2 grams per barrel. Buyers would then rush 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 all the discovery of the “price of gold” is based on synthetic and partially guaranteed liquidity. settled unallocated gold and gold price derivatives.

“What does this mean for the rouble?”

Pegging the ruble to gold via the fixed price of the Bank of Russia has now placed a floor under the RUB/USD rate, and thus stabilized and strengthened the ruble. Requiring natural gas exports to be paid for in rubles (and possibly oil and other commodities) will again act as stabilization and support. If a majority of the international trading system starts accepting these rubles for commodity payment deals, it could propel the Russian ruble to become a major global currency. At the same time, any decision by Russia to accept direct gold for oil payments will lead to the influx of international gold into Russian reserves, which would also strengthen the balance sheet of the Bank of Russia and strengthen its turn the ruble.

Talking about a formal gold standard for the ruble may 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 clearly taking note. Western sanctions such as freezing the majority of Russia’s foreign exchange reserves while trying to sanction Russian gold have now made it clear that property rights to foreign exchange reserves held abroad may not be respected. , and likewise, that foreign central bank gold held in vaults like the Bank of England and the New York Fed, is not beyond confiscation.

India ready to circumvent the dollar in its trade with Russia

Other non-Western governments and central banks will therefore be keenly interested 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, other countries may feel the need to follow its lead.

Look who, besides the United States, are the world’s largest producers of oil and natural gas – Iran, China, Saudi Arabia, United Arab Emirates, Qatar. Obviously, all BRICS countries and Eurasian countries are also following all this very closely. If the demise of the US dollar approaches, all of these countries will want their currencies to be beneficiaries of a new multilateral monetary order.

— What does this mean for the US dollar?

Since 1971, the global reserve status of the US dollar has been backed by oil, and the era of the petrodollar has only been possible because of both the continued use of the US dollar around the world for trading oil and the ability of the United States to prevent any competition from the American dollar. .

But what we are seeing right now looks like the beginning of the end of this 50-year-old system and the birth of a new multilateral monetary system backed by gold and commodities. The freezing of Russian foreign exchange reserves was the trigger. Commodity-rich giants of the world like China and oil-exporting countries may now feel that the time has come to move to a new, fairer monetary system. It’s no surprise, they’ve been discussing this for years.

While it is too early to tell how the US dollar will be affected, it will emerge from this period weaker and less influential than before.

– What are the ramifications?

The Bank of Russia’s decision to peg the ruble to gold and tie commodity payments to the ruble is a paradigm shift that Western media has yet to fully grasp. As the dominoes fall, these events could reverberate in different ways. Increase in demand for physical gold. Explosions in the paper gold markets. A reassessed gold price. A change away from the US dollar. Increased two-way commodity trade between non-Western countries in currencies other than the US dollar.

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