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

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.

To get some answers, RT spoke to precious metals analyst Ronan Manly at BullionStar Singapore.

— 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.    

— What does it 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.  

— 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 ramifications?

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 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.



https://www.rt.com/business/553099-gold-backed-ruble-gamechanger-west/

Gold-backed yuan may challenge flagging dollar

 AUGUST 12, 2020

One of President Xi Jinping’s top priorities is increasing the yuan’s role in global trade. That, of course, would mean making the currency fully convertible and foregoing all capital controls – things that aren’t going to happen in 2020.

All this has observers getting creative. Among them is economist Liu Shanen, secretary-general at the Beijing Gold Economic Development Research Center. In a recent interview with news portal Guancha, Liu detailed a plan to “revive the gold standard” as the US dollar loses luster.

https://asiatimes.com/2020/08/gold-backed-yuan-may-challenge-flagging-dollar/

I am skeptical of claims russia will back the ruble with gold.

I am skeptical of claims russia will back the ruble with gold.

Do they have enough gold for backing for real all the rubles in circulation? I highly doubt it.
I see it as a desperate PR stunt to show why they forcefully keep the ruble "price" high.
And as I said, it's PR. They're lying (what's new?). They don't have the gold for it, hence it's somewhere between advertising and actual scam.

I don't understand the reason for your doubts.

From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons) (https://www.cbr.ru/hd_base/mrrf/mrrf_m/).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

By the data I've found in a very quick search, the money supply in 2020 was 12.431 trillion rubles (https://tadviser.com/index.php/Article:Russian_ruble#12.431_trillion_rubles) and I expect in 2022 the number is bigger. So a simple math tells that at this rate they're at least 186.2 tons of gold short. It's much better than expected (although I have my strong doubts about how correct/real those numbers are), but still not covered 100%.

To fully ensure the entire money supply with gold? In Russia, there is a very strong shortage of money supply compared to other countries, but to demand that the entire money supply be fully backed by monetary gold on the balance sheet of the Central Bank is a bit too much, don't you think?

Indeed, it is too much. At least we agree on this. Yet, it's not me boasting this, the article premise is that Russian Central Bank will have the Ruble backed by gold.
And math has shown that this is not possible, not fully, even at the discounted price they work with.

I said directly in my first post on this topic that a return to the gold standard for Russia is now impossible and impractical.

Pegging the ruble to energy resources has more prospects.

However, at the same time, the existing gold reserves of the Central Bank of Russia are more than enough to, if necessary, immediately pay in full all of Russia's external debt, which now stands at about $58 billion (https://minfin.gov.ru/ru/perfomance/public_debt/external/structure/?id_39=135912-struktura_gosudarstvennogo_vneshnego_dolga_rossiiskoi_federatsii_na_1_marta_2022_goda).

I don't understand the reason for your doubts. From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons) (https://www.cbr.ru/hd_base/mrrf/mrrf_m/).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

I don't understand the reason for your doubts. From 2014 to 2020, the Central Bank of Russia actively increased the share of gold in its gold and foreign exchange reserves, buying up all the gold that is mined in Russia. As of February 1, 2022, the Central Bank has gold worth $132 billion (about 2,300 tons) (https://www.cbr.ru/hd_base/mrrf/mrrf_m/).

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer. Russia can at any time immediately fully repay its foreign debt in gold and withdraw from the external borrowing market, and this will not affect its current cash flows in any way.

Name at least one major economy in the world that is living within its means with a sustainable budget surplus and does not have a large external debt. Only Russia, there is no other answer.

It sounds really strong! There are just nuances. With all the "power of the Russian economy", very strange processes are taking place in Russia itself. Please explain in terms of logic, economic laws and theories - why? So what is happening inside Russia:
1. Stagnation of the economy. Even before the imposition of sanctions. Real fall in industrial production
2. Social problems - a sharp reduction in funding for educational, medical, social programs.
3. Destruction of the pension system. And the use of pension funds to solve completely different problems. Raising the retirement age, blocking pension savings
4. Loss of entire segments of the economy in the world market, as well as curtailment in the domestic market.

But such a powerful economy and so much gold? What is wrong here?! Clarify please ! :)

I am skeptical of claims russia will back the ruble with gold.

Other nations have made similar announcements in the past only a few years ago.

I think you are right in your doubts, especially since this is not a peg of the ruble to gold, but an obligation to buy gold at a fixed price in rubles, that is, support for the ruble from below.

I think a full return to the gold standard in a single country is impossible and impractical. Partly because the price of gold is determined by a consortium of several banks and this mechanism is not entirely market driven, not 100% determined by the current balance of supply and demand (therefore, spreads between the prices of "paper" and "physical" gold are regularly observed).

Pegging the ruble to gas is a more interesting phenomenon, because money in itself is a kind of life force equivalent and tying a specific currency to a specific energy resource does not look too artificial, and therefore the "gas_ruble" can be successful and viable, like the "oil_dollar" for example.

Venezuela based their economy on oil prices so it was almost as if their currency was pegged to oil. They mismanaged their economy and when oil prices crashed, so did the Venezuelan economy. If Russia were interested in stabilizing their currency, I suppose a gold standard would help, but it would make sense just to adopt a Bitcoin as a currency at that point and ditch ruble all together (I understand for obvious reasons why Russia would not do this, more of just a hypothetical).

Perhaps the discussion Russia should be having would be one geared towards saving their economy and not ruble.

Russia has a large external debt, but this is not the debt of the state, but the debt of large companies.  

Taking into account the fact that large companies are, in fact, backbone state-owned companies, their debt to foreign counterparties can be considered as an external public debt.  

Russia has to find another way to continue with the global trade and since they have been thrown out of the SWIFT system, they would certainly want to continue with their own currency. But I think it's only a proposal for now and no concrete decision has been made yet. While Russia is demanding only Rubble payments in exchange of their gas and oil which will force some countries to buy Rubble to support its value. Also he has proposed to peg 5000 Rubbles with the value of 1 gram of fine gold. It's a masterstroke from where I see it!

Russia is the second highest global natural gas supplier just after Unites states and even during the war, they were not replaced from its position. So seeking only Rubble payments for their gas supply and pegging the Rubble value with Gold, will reduce dollar dominance from this sector of world trade. Also it will support the value of Rubble from falling down. It is indeed a game changer in many aspects!

In the modern model of a society of advanced consumption, a higher standard of living is not for those who live within their means and save for a rainy day, but for those who actively use credit leverage and have a chronic budget deficit.

The large gold and foreign exchange reserves that Russia has managed to accumulate is, on the one hand, good, but on the other hand, this means that Russia has been purposefully filling the National Welfare Fund for years, instead of using this money to develop the economy. In fact, this money was systematically withdrawn from circulation and lay dead weight, undermined by inflation (if we are talking about fiat currencies), or taking up space in the vault and not paying dividends (if we are talking about gold).

Since 2014, after the annexation of Crimea, Russia has been under heavy pressure from economic sanctions, so its current economic model is more of a wartime economy than a peacetime one. I think Putin understood perfectly well that the US and NATO would hardly risk entering into a direct military confrontation with Russia (because "there are no winners in a nuclear war"), and the West's pressure on Russia would be economic.

Sometimes I wonder how long Putin will last with increasing pressure against him. Unless he acts quickly to help restore the economy, his regime won't last soon. We'll see how Russia's currency will perform by the end of the year as the US and the EU continue to tighten sanctions.

It's a wise strategy that might help rise the Ruble from the ground up. But getting access to gold reserves when sanctions are in place, is quite a difficult task to achieve. Maybe China will help Russia with this? Anyways, I think Russia should've thought about making its economy self-sustainable sooner. Now it's too late to do anything about it, as most countries stopped doing business with Russia.

Sometimes I wonder how long Putin will last with increasing pressure against him. Unless he acts quickly to help restore the economy, his regime won't last soon. We'll see how Russia's currency will perform by the end of the year as the US and the EU continue to tighten sanctions. Just my opinion :)

It's a wise strategy that might help rise the Ruble from the ground up. But getting access to gold reserves when sanctions are in place, is quite a difficult task to achieve. Maybe China will help Russia with this? Anyways, I think Russia should've thought about making its economy self-sustainable sooner. Now it's too late to do anything about it, as most countries stopped doing business with Russia.

Sometimes I wonder how long Putin will last with increasing pressure against him. Unless he acts quickly to help restore the economy, his regime won't last soon. We'll see how Russia's currency will perform by the end of the year as the US and the EU continue to tighten sanctions. Just my opinion :)

Perhaps reading Putin's intentions is too difficult since the Ukraine war broke out.  but i'm just looking at the existence of the russian economy, how the ruble will react to their dire conditions, at least they have had some positive results moving gas payments in dong  rubles, it pulls liquidity from Russia's local currency.  But this isn't going to last long, they look at a bitcoin-backed ruble mechanism / bitcoin legitimacy one that will happen soon I guess.  But bitcoin is stuck between Putin and the EU.  Lol

I think you are right in your doubts, especially since this is not a peg of the ruble to gold, but an obligation to buy gold at a fixed price in rubles, that is, support for the ruble from below.

I think a full return to the gold standard in a single country is impossible and impractical. Partly because the price of gold is determined by a consortium of several banks and this mechanism is not entirely market driven, not 100% determined by the current balance of supply and demand (therefore, spreads between the prices of "paper" and "physical" gold are regularly observed).

Pegging the ruble to gas is a more interesting phenomenon, because money in itself is a kind of life force equivalent and tying a specific currency to a specific energy resource does not look too artificial, and therefore the "gas_ruble" can be successful and viable, like the "oil_dollar" for example.

Been hearing this for years, sometimes the gossip is they are in cahoots with China to bring back the gold standard. If they really want to do this then they should do this now. Under peacetime I would say it's not a bad idea to peg the currency to gold. Especially with what's happening to the dollar recently.

Whether that's going to solve their wartime economic woes would be different matter, especially with sanctions limiting what transactions can be done.

With how things are panning out with this war, I believe, Russians are ready to replace Putin. One big wrong move of Putin and he will find himself ousted by his people. Actually, this war already is his one mistake. And we don't know the authenticity of the news of backing the ruble with gold. Maybe, just to change the mindset of other countries which are losing their trust to their government.

Forget the fairy tale "Russia and China"! China, of course, is still that "nut", but China is well aware that its economy depends on partners, even ideological opponents, but those who bring investments to China, who provide technology, and who provide a market for Chinese goods. And Russia for China is just a resource appendage, which it manipulates as China needs. Plus, "not far off" is the resolution of the issue of "the historical lands of China temporarily in the possession of Russia", and this is almost everything from the Urals to the far east of Russia.

Russia is aware that only with gold support can be a solution for strong finances and is resistant to inflation, and of course makes public trust and even the world increases because they are not worried about gold, and I hope the idea can happen soon and many countries are worthy The idea of the Russian government.

It won't help them.
Firstly, gold reserves, although significant, are not unlimited. Moreover, operations related to the sovereign debt of Russia are blocked, which means that Russia can replenish gold reserves only by buying out the domestic product, but cannot buy on the foreign market.
Secondly, where will she sell gold in order to get the currency, without which, after some time, imported components and high-tech equipment for gold mining will run out and that's all :) And there is nowhere to sell gold, or to China, and at a dumping price, because China wants it that way, and Russia, out of habit, will follow the order of the "big brother"!

Without international support, Russia will be doomed to failure. I can't see how backing the Ruble against Gold will have any positive effect over the country's economy, especially when it's almost impossible to do so. Putin's days are numbered, so the faster Russia changes its regime, the better it'll be for the country.

I'd say the US and its allies did a great job in trying to punish Putin's actions. But I believe that more needs to be done in order to stop the invasion for good. Once Russia backtracks, then it's possible the economy will restore itself at a slow and steady pace. Who knows what lies ahead for the Ruble before the year's end? Just my thoughts ;D