The BRICS countries are working on establishing a new reserve currency to better serve their economic interests, ambassador at large of Russia’s Foreign Ministry Pavel Knyazev said this week. It will be based on a basket of the currencies of the five-nation bloc. “The possibility and prospects of setting up a common single currency based on a basket of currencies of the BRICS countries is being discussed,” Knyazev said during a discussion about expanding BRICS and the Shanghai Cooperation Organization.
According to the diplomat, member states are “actively studying mechanisms” to exchange financial information to develop a reliable alternative for international payments. In an effort to reduce reliance on the dollar and euro, BRICS is set to build a joint financial infrastructure that will enable a reserve currency to be created. The group, which comprises Brazil, Russia India, China, and South Africa, has been boosting economic ties, with trade turnover steadily growing despite restrictions brought on by the pandemic and conflict in Ukraine. BRICS had previously said it was working on establishing a joint payment network to cut reliance on the Western financial system. The member countries have also been increasing the use of local currencies in mutual trade.
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Russia is a major global commodity producer and exporter. The country’s invasion of Ukraine has already pushed commodity prices to historically high levels and could also lead to commodity shortages. This situation may cause considerable economic damage, with far-reaching consequences for EU industry. Why is there a Russian-Ukraine war? What's the connection with Europe's Green Deal? And what's the role of the USA? Geologists call it the Ukrainian shield. That land in the middle which starts from the northern border with Belarus up to the shores of the Azov Sea, in the south of Donbass. According to the studies of the Ukrainian geological service, in the ancient rocks of this shield are hidden lithium deposits with great potential. Findings that have been identified mainly around the area of Mariupol, the port city of Donbass torn apart by Russian bombing. Lithium deposits in Ukraine “This may not be the main reason for the invasion, but undoubtedly Ukraine's mineral wealth is one of the reasons why this country is so important to Russia,” said Rod Schoonover, former director of the Environment and Natural Resources Section of the U.S. National Intelligence Council. A wealth confirmed by the fact that Ukrainian lithium had begun to attract global attention as early as last year, before the Russian invasion halted exploration. Last November, in fact, the Australian company European Lithium said it was close to securing the rights to two promising deposits of lithium in the region of Donetsk (eastern Ukraine) and Kirovograd, in the center of the country. In the same month, the Chinese company Chengxin Lithium has also asked for the rights on some deposits, a move that would allow China to win the first deposit in Europe. “Since there are no developed deposits, I highly doubt that lithium resources are the motivation for attacks in the Southeast,” Schoonover tells Renewable Matter. “But if this region falls under Russian control, lithium reserves would certainly be a co-benefit for the Kremlin. Certainly, the rest of the world would have a say. It would not import lithium from a pariah state (a nation that is not recognized by the governments of other countries due to human rights violations), especially when there are better alternatives in geopolitically more favourable countries.”
Dini tells Renewable Matter, “ and are problematic for the metallurgical processes of extracting the metal. Since 1991, Ukrainians here have been extracting mostly precious stones.”
The other mineral resources in Ukraine Ukraine has 10% of the world's iron reserves, 6% of titanium and 20% of graphite. “In geology, this extremely flat region is called peneplain,” Andrea Dini points out, “because it is so ancient that it has been flattened by erosion. Many of the rocks are billions of years old and you don't see them on the surface because they are covered by layers of sediment.” There are more than just minerals in Ukraine, however. In the northeast, near the Russian border, there is a 400-million-year-old sedimentary basin filled with organic material and black shale rocks. “These are black slates with large amounts of coal and methane. For example, part of US energy independence is due to the extraction of methane (Shale Gas) from these rocks on US soil.” There is also another sector that has a close link with Ukraine's resources: Italian ceramics. The ceramic industrial district of Sassuolo is one of the most important in the world and the quality of its tiles also depended on the importation from Ukraine of clay and kaolin, a mineral that is extracted from the quarries of Donbass. In the Italian ceramics industry, 25% of raw materials – including clay considered prized – came from Ukraine. After the Russian invasion, companies in the district will have to find compatible and competitive alternatives. According to insiders, first of all they need to find another recipe, that is, a new mixture of clays, kaolins and feldspars with material imported from other countries. One trend in the precious metals markets which has yet to get widespread coverage but deserves more attention is the plummeting inventories of physical silver in the London vaults of the London Bullion Market Association (LBMA). These comprise vaults in and around London run by the bullion banks JP Morgan, HSBC and ICBC Standard Bank, as well as the London vaults of three security operators, Brinks, Malca-Amit and Loomis. London sub-Billion Market Association. Haemorrhaging Quietly, and almost under the radar, the quantity of silver held in the LBMA vaults has been consistently haemorrhaging for 7 straight months now. Latest data from the LBMA as of the end of June 2022 shows that the LBMA vaults now hold only 997.4 million ozs of silver (31,023 tonnes). Compared to the end of June 2021 when LBMA silver inventories stood at 1.18 billion ozs (36,706 tonnes), the LBMA vaults’ June 2022 month-end silver inventories are now 182.7 million ozs (5,683 tonnes) lower than a year ago, in other words a whopping 15.48% lower compared to June 2021. Notably, most of this freefall in London silver holdings has occurred since the end of November 2021, with LBMA silver inventories having consistently fallen each and every month since then. From the end of November 2021 when the LBMA London vaults reported holding 1.17 million ozs of silver (36,422 tonnes), silver inventories have fallen by a cumulative 173.5 million ozs (5,398 tonnes). That’s a 14.82% drop over 7 months from end of November 2021 to the end of June 2022. In addition, these June 2022 LBMA silver holdings are the lowest LBMA silver inventories since December 2016 and the first time since November 2016 that the LBMA silver inventories have fallen below 1 billion ozs. Over the exactly 6 year period since monthly LBMA silver inventory data was first published in July 2016, there has never before been a 7 month period (nor a 6 month period) in which the LBMA silver holdings fell consistently each and every month. The only partially comparable time period across the data series was when LBMA silver holdings fell consistently in each of 5 months between April and August 2020, and that was during the LBMA – COMEX (Exchange for Physical (EFP)) crisis when the LBMA bullion banks in panic mode were forced to transport huge amounts of silver (and gold) bars from the LBMA London vaults to the COMEX vaults in New York to meet the delivery requirements on futures contracts so as to prevent gold and silver prices moving into real price discovery mode. Over that 5 month period between April and August 2020, the LBMA silver inventories dropped by 102.2 million ozs (i.e. a drop of 8.7%). But to put it into context, the current haemorrhaging of silver from London of 182.7 million ozs that has been ongoing since June 2021 is now approaching a figure that is twice as large as the April – August 2020 LBMA silver vault outflows from London. Lack of Underpinning
On its website, the LBMA disingenuously claims that the silver (and gold) held in its London vaults “provide an important insight into London’s ability to underpin the physical OTC market.” What the LBMA doesn’t say however, is that of the 31,023 tonnes of silver that it claims was held in the LBMA London vault warehouses at the end of June 2022, a massive 19,422 tonnes, or 62.6% of this total, represented silver held in the LBMA London vaults that was owned by Exchange Traded Funds (ETFs) such as the iShares Silver Trust (SLV), the Wisdomtree Physical Silver ETC (PHAG), and the Aberdeen (abrdn) Physical Silver Shares ETF (SIVR). The current and open fraud regarding the paper gold price in the COMEX market is now as plain to see as the open desperation in the global financial system, which is unravelling in real-time all around us. As risk assets tumble foreseeably into bear territory before a headwind of deliberately rising rates, precious metals have seen headline-making falls as well. Tracking the Paper Gold Price —The Standard Answer In prior reports, we’ve noted that precious metals typically behave sympathetically when markets tank; thereafter, gold then surges north. We saw this pattern in October of 2008 and March of 2020. Furthermore, when a Hawkish Fed pursues a temporary yet face-saving policy of rate hiking and quantitative tightening, this makes the USD the relatively stronger horse in the global currency glue factory. And a relative rise in the USD, of course, is a headwind to gold. Explaining the Paper Gold Price —The Rigged Answer But let’s get to the real heart of the matter, namely: Legalized paper gold price manipulation (i.e., fraud) in the COMEX market, a topic we’ve addressed more than once. As we’ve openly argued for years, nothing embarrasses an otherwise discredited fiat currency like a rising gold price. As I’ve described it, rising gold prices are a middle finger to debased currencies whose declining purchasing power are the DIRECT result of the failed and drunken monetary policies (i.e., mouse-click trillions) of a central bank near you. Or as Ronan Manly more distinctly observed: “Gold to central bankers is like sun to vampires.” And that, folks, is precisely why the big banks (under the direction of the BIS) are deliberately (and if law school serves me correctly) as well as fraudulently manipulating the paper gold price. Facts vs. Manipulation In the first quarter of 2022, we saw record high purchases of ETF gold, physical gold and central bank gold. Even Goldman Sachs’ head of commodity research was targeting $2400 gold this year. Instead, the gold price has been falling as gold demand has been rising. Huh? It reminds me of 2008 when mortgages were defaulting en masse yet the ABX index for sub-prime mortgages was rising. In short, complete (and temporary) manipulations were going on behind the curtains of a few wayward banks, including Morgan Stanley. Today’s gold behavior (i.e., surreal manipulation) is no different and no less of an insult to the natural forces of supply and demand, which central bankers have attempted to destroy for well over a decade. But the jig will soon be up on these masters of open fraud and Wall Street socialism. The Paper Gold Price & The Horse’s Mouth For now, and in case you fear I’m just acting as a “gold bug” apologist, let’s go straight to the horse’s mouth and examine the confessions and facts of open price manipulation in the precious metal markets. And I swear, you really can’t make this stuff up, it’s just that obvious and distorted. In a recent article by Peter Hambro published by the British news site, Reaction, a 3rd generation gold insider (Petropavlovsk, Bank Hambros) made the open secret of paper gold price manipulation abundantly clear and incontrovertible. It’s also worth adding that Mr. Hambro’s entire career was that of an heir to a banking dynasty all too familiar with the insider machinations of the London bullion markets and London Stock Exchange. In short, when Mr. Hambro discusses gold price manipulation, it’s worth listening. A Chart Says a Trillion+ Words More importantly, and for those who prefer facts over human confessions or “gold bug whining,” the following chart from the U.S. Office of the Comptroller of the Currency (OCC) clearly reveals the extreme extent by which just a handful of highly pocketed (and central bank supported) banks like JP Morgan and Citi can use extreme turns of derivative-based leverage to short (i.e., keep a permanent boot to the neck of) the paper gold price: That rising bar on the far right is nothing more than crime scene evidence. As Hambro remarks, a long history of media and bank supported mis-information has tried to keep a lid on the desperate attempts by just a small number of BIS minion banks like JP Morgan and Citi to effectively prevent free market price discovery on the paper gold price. Despite thousands of daily long contracts (i.e., buy orders) in the OTC forward contract markets, if just 7-8 banks wish to use massive leverage (rising bar on the right) to short the same metal, they can effectively fix the gold price via artificial manipulation of derivatives contracts, to which only a small number of banks have access. All of this open yet legalized fraud is managed by the central-banks central bank, namely the Swiss-based Bank for International Settlements. The Jig (Rig) is Up We may be a bit jaded and realistic, but that doesn’t make us naive. Gold will get the last and honest laugh over such a corrupt and dishonest “policy.” As central banks continue to lose more and more credibility, and as investors become more and more fluent in, and aware of, the absurdity of the lies that have been sold to us for years by central bankers and MMT midgets who claim that a debt crisis can be solved with more debt, which is then paid for with trillions created out thin air, the system unwinds. As the inevitable inflation crisis emerges from precisely such absurd “policies,” the central bankers can no longer blame the obvious and long-dated/repressed inflationary consequences of their drunken monetary policies on a virus or Putin. Nor can they continue to peddle the lie that inflation was merely “transitory,” a fact we made clear long before Powell confessed it was not so. Stated otherwise, more and more folks are catching on to the fraud. The math plainly shows that expanding the broad money supply (and central bank balance sheets from $6T to $36T in just over a decade) is the real cause of the inflation in your neighbourhood and the debasement in your wallet. The First Cracks & the Last Straws
Geopolitical shifts, assassinated prime ministers, fired prime ministers, angry truck drivers, stormed capitals and Sri Lankan protestors are just the first tragic cracks in a growing social unrest driven by declining wealth and growing wealth disparity, all classic and historic symptoms and patterns of when a debt crisis leads to a political crisis, and sadly (and ultimately) more centralized controls over our markets and lives. But as even Hambro observes, eventually the last straw breaks the back of a rigged camel, and the “straws blowing in the wind are often said to presage great tempests and I believe that {the chart above] shows just such a straw.” Years of distorted, rigged and entirely reckless debt-and-print polices have made global economies and currencies weaker, not stronger. Dying Faith, Rising Gold After years of profligate central bank policies, the so-called “developed economies,” which are now little more than glorified banana republics, are losing credibility, options and most importantly public faith. This is critical. In the end, when faith in a system ends, so does its currency. We’ve written before how impossible it is to market time “the end of faith,” but charts like the one featured herein help to point out the rigging and hence accelerate the inevitable end to derivatives-based fraud, centralized price-fixing and, eventually, the OTC casino in particular. Meanwhile, the current buy window for repressed precious metals is remarkable, and once central banks cripple the markets to their deflationary pain points, chaos will return, along with the inflationary money printers—all of which will send precious metals higher and fiat currencies and markets to their mean-reverting lows. Thanks to Matthew Piepenburg These are fraught times for the cryptocurrency and blockchain sector, so it isn’t surprising that industry proponents might seize upon any promising news to help charge flagging markets. A Reuters report out of Uganda last week about a massive gold ore discovery supplied just this kind of fuel. What does the state of gold mining in Africa have to do with the price of global Bitcoin (BTC)? Quite a bit, potentially. Bitcoin has periodically laid claim to being digital gold largely on the strength of its strict 21 million supply limit, which makes it non-inflationary and a good store of value — in theory. Gold, of course, is the store of value par excellence, with a limited supply and a solid track record that goes back millennia. But, if Uganda is sitting on 31 million metric tons of gold ore, as the government declared, might not that substantially boost the world’s gold supply? That in turn could lower the price of gold — and make it a less secure “store of value” generally. Gold’s loss could be the cryptocurrency’s gain. Some drew encouragement from this notion. MicroStrategy CEO Michael Saylor, for instance, posted a video on Twitter about the Ugandan discovery of “huge gold deposits” which might net 320,158 metric tons of refined gold “valued at $12.8 trillion.” As Saylor noted on June 17: “#Gold is plentiful. #Bitcoin is scarce," further telling CNBC: “Every commodity in the world has looked good in a hyperinflationary environment, but the dirty secret is you can make more oil, you can make more silver, you can make more gold. […] Bitcoin’s the only thing that looks like a commodity that is scarce and capped.” But, perhaps there is less here than meets the eye. The 320,158 metric tons of refined gold that the Ugandan mining ministry spokesman said could be produced from the new deposits in the country’s north-eastern corner would far exceed the 200,000 metric tons in above-ground gold that exist in the entire world today. One gold mining trade publication went so far as to suggest the Ugandan government may have been confusing metric tons with ounces in its projections.
Zimbabwe is set to introduce gold coins that will enable investors to store value within the country as inflation spirals out of control and the local currency continues to rapidly devalue against major currencies. The move comes after inflation for June jumped to 191.6% from 132% in May. In a statement on Monday, the southern African country’s central bank chief John Mangudya announced the new gold coins would be available through normal banking institutions.
“The Reserve Bank of Zimbabwe’s Monetary Policy Committee (MPC) resolved to introduce gold coins into the market as an instrument that will enable investors to store value,” Mangudya said. “The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.” Fidelity Gold Refineries (Private) Limited is the sole gold buying entity and refining entity in the country and is owned by the central bank. The central bank’s monetary policy committee expressed “great concern on the recent rise in inflation”, which increased by 30.7% on a month-on-month basis for June 2022. Authorities are struggling to pull Zimbabwe from the grips of an economic crisis characterised by high inflation, a rapidly devaluing local currency, 90 percent unemployment and declining manufacturing output. The country’s inflation has been on an upward trend in the past three months as inflation pressures rise, driven by the continued weakening of the Zimbabwean dollar which is trading at $1:650 on the black market. The printing of new money by the central bank has also worsened the situation, reversing gains made in the past two years that saw inflation decrease from a peak of 800 percent in 2020 to 60 percent in January this year. As part of measures to stabilise the economy, the central bank will more than triple the lending rate from 80 percent to 200 percent per annum and raise the interest rate from 50 percent to 100 percent per annum. US Secretary of State Antony Blinken told CNN on Sunday that an embargo on Russian gold exports will strip Moscow of around $19 billion in annual revenue. Pressed over the West’s failure to hurt the Russian economy with sanctions thus far, Blinken predicted that the effects will be seen next year. The US, UK, Canada, and Japan will announce a ban on the import of Russian gold during the G7 Leaders’ Summit in Germany on Sunday, according to a statement from the British government.
Gold is “the second most lucrative export that Russia has, after energy,” Blinken told CNN’s Jake Tapper. “It’s about $19 billion per year, and most of that is within the G7 countries. Cutting that off, denying access to about $19 billion of revenue a year, that’s significant.” Blinken's statement was factually incorrect. In reality, Russia's second most valuable export is food. Foreign sales of agriculture products were worth over $37 billion in 2021, according to Moscow. It is unclear whether the rest of the G7 nations will sign on to the ban, with European Council President Charles Michel saying on Sunday that the EU would first need to determine whether it would be “possible to target gold in a manner that would target the Russian economy and not in a manner that would target ourselves.” US President Joe Biden has said that a gold ban would impose “unprecedented costs on Russian President Vladimir Putin,” and UK Prime Minister Boris Johnson has claimed that it will “strike at the heart of Putin’s war machine.” However, both leaders said the same about the multiple rounds of sanctions imposed on Russia by their countries and their EU allies. Yet, while Biden promised in March to “crater” the Russian economy, Moscow is reporting record profits from oil and gas sales, and the Russian ruble currently stands at a seven-year high against both the dollar and the euro. Meanwhile, inflation is at its highest level in 40 years in the EU and the US, and customers on both sides of the Atlantic are paying record high fuel prices. Despite agreeing on a Russian oil embargo last month, the EU is reportedly importing more Russian crude now than at any point over the last two months. Russia will also still have the option to sell its gold to refiners, or to look for new buyers in China, India, or the Middle East, as it has done with its fossil fuels. “The US said that Western sanctions against Russia would devastate its economy but that doesn’t seem to be happening. When are these sanctions going to start having the effect that the West and President Biden has promised?” Tapper asked Blinken. It was almost inevitable that the Czech Republic would buy more gold. With all of its regional neighbours having recently either repatriated large quantities of gold (Germany and Austria), or bought large quantities of gold (Poland and Hungary), it seems that the Czech Republic has now taken note and does not want to be left out of this Central European gold rush. On 26 May in an interview with Czech publication Ekonom, the incoming governor of the Czech National Bank (CNB), Aleš Michl, said that he plans to massively increase the central bank’s gold reserves from the current 11 tonnes to over 100 tonnes or more. 1000% Increase in Czech Gold Holdings Talking to Ekonom’s editor Vojtěch Wolf, and deputy editor-in-chief, Martin Petříček, the soon to be central bank governor explained his approach to the management of the Czech central bank’s reserves: Ekonom question: “You have repeatedly said that the CNB should manage foreign exchange reserves differently, which have swelled in recent years. What is your vision on that?" Aleš Michl answer: “The reserve management team is professional, they have assignments from the bank board that perform well. I would like to give them a new assignment, to slightly increase the expected return on reserves. To do this, you need to have more stocks and more gold. And to do it gradually, step by step, it is a change of strategy over years." Ekonom question: “How should the proportions of the individual components develop?" Aleš Michl answer: “In our Assets and Liabilities Committee, I will propose to, gradually over the years, increase equities from the current 16 percent of reserves to 20 percent or more. The central banks of Switzerland, Israel or large state sovereign wealth funds, led by Norway, do the same. And I will propose to have more gold, from 11 tonnes to 100 and more tonnes. Gradually, over several years. Gold is good for diversification, it has zero correlation with stocks." The 44 year old Michl has been a member of the Czech central bank board since December 2018, and will begin his 6-year term as CNB governor on 1 July 2022, after having been appointed to the role by Czech president Miloš Zeman. The Ekonom interview also gives some insights into how the new CNB governor thinks about managing the Czech central bank’s gold and foreign exchange reserves, with the word ‘wealth’ cropping up a number of times. Michl – “My vision is to have a long-term profitable CNB. We are at a great loss now. I would like to set the strategy so that the expected return on assets, which are foreign exchange reserves, in the long run exceeds the cost of the central bank’s liabilities, which are mainly deposits of banks that we have to pay interest on." Ekonom question: “For what reason?“ Michl – “It is a vision to create a nation’s wealth that exceeds my six-year term.” Elsewhere he again mentions the wealth of a nation: Michl – “Rather than predicting another devastating event, it is much easier to conclude that a country, nation, population, business or enterprise can better mitigate the effects of disasters if they have savings, wealth, rather than a pile of debt in better times. “
A Datacenter – But for Gold
From the photos, you can see that the gold storage vault of the Portuguese central bank has a very orderly design, with tall racks of bars (maybe 30 rows high) laid out in close proximity to each other to form a number of aisles and corridors. It almost has a datacenter feel to it, except instead of servers and routers, there are gold bars. Commenting on the visit, reporters Sandra Afonso and Marta Grosso from Radio Renascença wrote: : “This Tuesday, on a guided tour, journalists were able for the first time to take photographs of the gold in the Casa Forte de Reserva, located in Carregado. Much gold is stored in these facilities: 13,666 bars, totaling 173 tons. Each bar weighs about 12 pounds. In Carregado, there are still 406 bars that belong to the European Central Bank (ECB), but are in the custody of the Bank of Portugal (BdP). “Interestingly, most of the gold is abroad. We have 186 tonnes in custody at the Bank of England, one of the main gold custody and gold transaction locations. We have a significant part of our gold there: around 49%”, said Hélder Rosalino [Banco de Portugal director]” Interestingly, the Banco de Portugal’s Carregado vault claims to be storing about 5 tonnes of gold which belongs to the European Central Bank (ECB). This is gold that was transferred by the Banco de Portugal to the ECB in 1999 as part of the creation of the Euro when each founding central bank member transferred foreign reserve assets to the ECB, 15% of which had to be in the form of physical gold.“
Like anything in the central bank gold world, there is no transparency into the claimed gold of any of these central banks nor any independent physical audits of the gold bars they claim to hold, so when talking about relative rankings, we will just have to go with the figures of the IMF / World Gold Council. Just Outside Lisbon The Banco de Portugal maintains that just over 45% of its total gold reserves, or 127.6 tonnes (5,549,238 ozs), is held in the form of gold bars in its vault in Carregado, and it was these gold bars which the Portuguese reporters and photographers were briefly shown in what the Reuters report about the visit called a ‘Rare Glimpse'. But apart from Reuters, a whole host of Portuguese media seemed to be present for the tour of the vault, judging by the extensive coverage this gold vault ‘tour’ received in the Portuguese media. So it is these reports of the Portuguese media which we turn to get more details about the Carregado vault and what the media saw. And since there were photographers present, quite a few photographs of the gold were taken, a selection of which are included below. The Banco de Portugal’s Carregado Complex is a 67,000 square metre compound in an industrial part of the town which is surrounded by high walls and barbed wire, and which is guarded by machine gun toting members of Portugal’s National Republican Guard, and their four-legged friends, German Shepherds. As well as the gold vault, this Carregado Complex, built in 1995, is where the Portuguese central bank prints Euro banknotes, so there are said to be more than 200 bank employees working in this operational centre.
Apart from the 172.6 tonnes (45%) of Portuguese gold in the Carregado vault near Lisbon, the Banco de Portugal maintains that another 186.4 tonnes (48.7%) of its gold is stored in the Bank of England in London, with an additional 20 tonnes (5.2%) stored with the Bank for International Settlements (BIS), and the remaining 3.7% tonnes (1%) now stored at the Banque de France in Paris after having been moved in 2021 from the vault of the Federal Reserve Bank of New York (FRBNY). So overall, the split is 45% of Portugal’s gold is supposedly stored in Portugal, with the remaining 55% stored abroad. Global energy prices are projected to rise dramatically, culminating in the biggest price jump in commodities in nearly half a century, the World Bank has warned. According to the bank’s April Commodity Markets Outlook report, global energy prices, which have already seen a dramatic surge due to ongoing Covid-19 lockdowns in China and the Russia-Ukraine conflict, are expected to surge by 50.5% in 2022.
“This amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel, and fertilizers,” the World Bank’s Vice President for Equitable Growth, Finance, and Institutions, Indermit Gill, said in a statement accompanying the report released last Tuesday. The report points out that sanctions imposed on Russia have undermined global trade in commodities, having triggered huge energy-price increases. Food prices are projected to increase by 22.9% this year as well, the most since 2008, as wheat prices jump 40% to record highs. That will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine,” the World Bank said. Ukraine was expected to produce 10% of the world’s wheat in 2022, but the institution says anywhere from 25% to 50% of that production has been affected by the conflict. Meanwhile, metal prices are expected to grow by 16% before easing next year but will reportedly remain at elevated levels. According to the report, surging commodity prices have contributed to inflation levels not seen in more than 40 years in the US, and a record 7.5% jump in consumer prices in Europe. “These developments have started to raise the specter of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy,” Gill said. On Tuesday 26 April in an interview with newspaper Rossiyskaya Gazeta (RG), the Secretary of the Russian Federation’s Security Council, Nikolai Patrushev, said that Russian experts are working on a project to back the Russian ruble with gold and other commodities. The interview, which is in Russian, can be seen on the RG website here.
. For those who don’t know the name Nikolai Patrushev, Patrushev is one of the Russia’s most powerful security/intelligence officers and a close ally of Putin. After serving between 1999 and 2008 as Director of the Russian Federal Security Service (FSB) (the successor organization to the KGB), Patrushev moved to being Secretary of the Russian Security Council since 2008. In fact, Patrushev took over as Director of the FSB in 1999 from the previous incumbent, Vladimir Putin. The Security Concil of the Russian Federation is chaired by Putin, with Patrushev as Secretary, overseeing the Security Council and answering directly to Putin. The deputy chairman of the Security Council is Medvedev Dmitry, the former Russian president and prime minister. Among the other member of the Security Council are current Russian prime minister Mikhail Mishustin, and Russian foreign minister Sergei Lavrov. So when Nikolai Patrushev says that Russia is working on a plan to back the ruble with gold and commodities, it is not just anyone saying this, it is being said by the highest echelons of the Russian Government. A New Gold Standard? In late March when the Bank of Russia offered to buy gold from Russian banks at a fixed price of 5000 rubles per gram, this was the first step in linking the ruble to gold. That move also put a floor price under the ruble and acted as a catalyst for the ruble to re-strengthen ground against the US dollar that had been lost in late February / early March. During the same week in late March, Putin also informed the global market that non-friendly importers of Russian gas would have to pay for Russian natural gas using rubles. That move (which we are now seeing playing out in the EU) was the other side of the equation, linking the ruble to commodities. What we are seeing now is Nikolai Patrushev and the Kremlin confirming this simple equation of linking the Russian ruble to gold and commodities. In other words, the beginning of a multilateral gold and commodity backed monetary system, i.e. Bretton Woods III. The euro slumped to a near two-year low on Thursday after the European Central Bank (ECB) remained vague about when it will raise interest rates in the face of soaring inflation. The drop in the single currency helped boost European stocks, while Wall Street equities resumed a downward slide amid worries over tightening U.S. monetary policy. The ECB stood still in the face of record eurozone inflation, keeping its stimulus plans and rates unchanged, as the fighting in Ukraine cast a pall over the eurozone economy. Meeting for the second time since the outbreak of the conflict, the bank's 25-member governing council stuck to a plan that "should" see its bond-buying scheme come to an end in the third quarter. An interest rate hike would follow "some time" after the stimulus program comes to an end, and any increases "will be gradual."
The decision leaves the ECB further out of step with many of its peers. Central banks such as the Bank of England, the U.S. Federal Reserve and the Bank of Canada have already triggered their first interest rate rises in response to soaring inflation. The euro took a knock after the ECB's decision, slipping under $1.08 for the first time since May 2020, falling as low as $1.0758. The ECB "continues to show little sign of looking to hike rates after leaving rates unchanged at their policy meeting today, while being even handed over the risks facing the eurozone economy," said market analyst Michael Hewson at CMC Markets UK. The ECB announcement provided a boost, however, for eurozone stocks, which moved into positive territory and ended the day higher. Musk's Twitter bid Wall Street meanwhile retreated, concluding a holiday-shortened week on a weak note, as the yield on the 10-year U.S. Treasury note surged above 2.8 percent. Treasury yields are seen as a proxy for interest rates. "Right now, we're tied to this correlation between rising yields and falling tech shares," said Art Hogan, strategist at National Securities. All three major indices fell, with the Nasdaq leading the group by falling 2.1 percent. Citigroup gained 1.6 percent, while Goldman Sachs dipped 0.1 percent and Wells Fargo tumbled 4.5 percent. Elsewhere on the corporate front, Tesla chief Elon Musk launched a hostile takeover bid for Twitter, offering to buy 100 percent of its stock and take it private, according to a stock exchange filing. The move follows Musk's criticism of the platform. Some analysts expressed skepticism about the bid, noting Musk's history of outrageous and unpredictable conduct. The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 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 has been proposed this week, to sell its commodities priced in rubles, these combined moves could have huge implications for the ruble, the US dollar, and the global economy.
Why is setting a fixed price for gold in rubles significant? By offering to buy gold from Russian banks at a fixed price of 5,000 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 (5,000 / 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 5,000 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 $1,940. 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 it 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 that 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. What does it 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.
The US left more and more of the production to China, leaving them with a huge package of dollars. Those dollars were then invested in US government bonds, completing the circle again. China thus increasingly became the factory of the United States. Oil producers also saw the pile of dollars increase considerably. And there too, those dollars were reinvested in American government paper. It was a deal that everyone was relatively happy with until the financial crisis hit in 2008. The US started printing dollars en masse to save the banks and the economy and if you keep a large part of your reserves in this currency, like China, Saudi Arabia and Russia, you start to question the value of those assets.
Surely it cannot be that the Chinese mine raw materials, import energy and labor to produce goods and then be compensated with a stack of banknotes that the Federal Reserve creates at the touch of a button? And the Saudis and Russians also wondered whether it was such a good idea to pump up finite oil reserves in exchange for freshly printed dollars. The first cracks in the dollar's status as a reserve currency became visible. China, Saudi Arabia and Russia continued to export goods in exchange for dollars, but they were no longer willing to invest those dollars in US bonds. They saw the dollar out of business and turned to gold as a historical reserve asset. Dollars received from trade with the US were instantly converted to gold. Countries with dollar surpluses had expressed dissatisfaction with the Federal Reserve's loose monetary policy through massive gold purchases, but it seemed to make little impression on Americans. In fact, the US began to abuse the unique privilege of the world reserve currency in yet another way. The US started to use the dollar as a weapon by cutting off access to dollars from countries such as Iran, but also recently Russia. |
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