The Gold Standard is Emerging… A reevaluation is immanent.
The Russians and Chinese appear to be forming the basis for the payment vehicle within the oil trade. Consider it as a formal reflection of the Iran-India gold for oil trade.
Bilateral Oil for RMB Sale + Shanghai Gold Exchange = Gold Trade Note
Russian oil & gas is being sold for Chinese Yuan, and then Yuan is traded for Gold at the Shanghai Gold Exchange. Oil for RMB for Gold, creating a transaction payment in gold terms
The Petro-Dollar system has stood for 45 years. It has decayed into tatters. Its derivative foundation is being liquidated, a long painstaking process. A new disruptive model was forged in 2014 when Iran sold India oil, which was paid in gold, but delivered from Turkey. Gradually emerging is the Gold Trade Note, first in oil payment then later in general payments in shipped goods. It is evolving within the Chinese market from Russian energy sales, all conducted outside the USDollar sphere.
The Chinese are putting in place a link between oil and gold, once again like before the Bretton Woods Gold Standard was violated by Nixon in 1971. The Gold Standard is emerging, with respect to the oil market.
PETRO-DOLLAR SYSTEM HAS BEGUN TO BREAK DOWN. The correlation between the Saudi USTreasury holdings and the crude oil price has broken down. The inverse correlation between the USDollar currency index and the crude oil price has broken down.
Following the sanctions of Iran, Iran began selling a portion of its energy products to China for RMB currency, bypassing the Petro-Dollar entirely. In turn Iran used the RMB to purchase Chinese goods and services
China then decided on a policy shift, no longer to accumulate FOREX reserves, with the finger of toxic 2blame pointed at the USGovt. The great reduction of USTBonds had commenced.
The Shanghai exchange which has rapidly become the largest physical delivery market in the world for Gold.
During the Reagan Admin, USTreasurys were backed 132% by the market value of the country’s gold reserves. Today, the amount has fallen to 4.7% only. The globe is awash in toxic USTreasurys, the infamous black hole often cited in the Hat Trick Letter. Demand has dried up for USGovt debt securities. Thus the advent of QE by the USFed, the phony demand, the US-based central bank buying the USGovt debt. Witness debt monetization, Third World style.
Russia has been adding to its official gold reserves, selling off their USTBonds during the conflict over Ukraine. In doing so, Russia fortifies its Ruble currency with actual hard assets, namely gold. Also, China has been adding to its official gold reserves, under similar circumstances
During the first seven months of 2016, China imported about 30.5 million metric tons of Saudi oil, a 0.4% decrease over the previous year. By comparison, China imported about 29.5 million metric tons of Russian oil as an impressive 27% increase over the previous year. China moved toward the Russian energy embrace, while both nations added to their gold reserves.
The strong oil price decline in the last two years indicates that crude oil is in the process of being priced in gold terms. Availability of gold in Shanghai has changed the paradigm. The pendulum that swung hard for over 40 years is about to swing back in the other direction. Consider the three major asset classes, namely gold, oil, and USTBonds.
With an annual production of $170bn, gold is by far the largest metal market by value. However, that figure is overwhelmed by the oil market which is 10 times larger at $1720 billion, on an annual production basis. The USGovt in collusion with the USFed produce a ripe $1200 billion each year, plus another $400 odd billion in covered redemptions. The paper asset is in huge abundance. Such is the nature of the USTreasury Bond black hole. The conclusion is simple, that the gold market is under-valued, that the gold price suffers from a scarcity in value. In time, expect an eventual refusal by Eastern producing nations to accept USTreasury Bills in payment for trade.
The New Scheiss Dollar will arrive in order to assure continued import supply to the USEconomy. It will be given devaluation out of the gate, then many more devaluations of similar variety. The New Dollar will fail all foreign and Eastern scrutiny. The USGovt will be forced to react to USTBill rejection at the ports.
The US must accommodate with the New Scheiss Dollar in order to assure import supply, and to alleviate the many stalemates to come. The United States finds itself on the slippery slope that leads to the Third World, a forecast that has been presented since Lehman fell. The only apparent alternative is for the United States Govt to lease a large amount of gold bullion (like 10,000 tons) from China in order to properly launch a gold-backed currency. Doing so would open the gates for a generation of commercial colonization, but actual progress in returning capitalism to the United States.
United States will be vulnerable from a $550 billion annual trade deficit. Its settlement after one year would exhaust all 10,000 tons, since at $1300/oz, such gold tonnage would be worth $420 billion. The United States is truly trapped in an economic insolvency situation, with inadequate industry and a huge unresolved trade deficit.
Failure to produce a legitimate bonafide gold-backed currency, together with an adequate industrial base, would mean the United States will be confronted with a real big nasty currency crisis.
Any new currency, even with gold backing, would be subjected to a series of devaluations due to the enormous trade deficit. The result would be heavy powerful painful price inflation from the import front. The effect would be to reverse a generation of exported inflation by the United States. The entire USEconomy would go into a downward spiral with higher prices, supply shortages, and social disorder.
However, the rising prices would come from the currency crisis, and not so much from the hyper monetary inflation. That flood of $trillions has been effectively firewalled off. During the crisis that comes, the gold price will find its true proper value between $5000 and $10,000 per ounce.
The oil market is easily 10 times the size of the gold market. Just doing the math there is nowhere near the amount of gold available to buy oil. either oil needs to be around $6 / barrel. Or if oil was steady around $60 barrel then gold would need to be at least $12,500 to $15,000 / oz
Obviously there is not enough gold to pay for oil unless the gold rigging stops and the oil rigging stops. Eventually it would strike a balance that the free market sets.
The dollar is not going to be replaced immediately as 50% if all trade settlement is still in dollars and 75% of all international financial transactions are done in dollars. More so it will be replaced gradually before the weight balance flips and everything goes fairly quick. Foreign entities have borrowed trillions in dollar denominated loans and this always creates demand for dollars, atleast while the loans remain relevant.