Connecting the Dots

It appears that I might have been right about Russia's $41 billion move and its impact on the gold price. The price was held down for the month of June, allowing Russia to get as much gold as possible for its remaining dollars. Now that the month of June is behind us, the gold price is again drifting higher.

This suggests to me that Russia has been able to suppress the gold price through the futures market, and that other gold importers such as China have been able to do the same. The price suppression, which is good for the dollar, has not been the sole domain of the West. Gold importers have also engaged in this, and may well have been the dominant players over the last decade.

This would explain the decision to redefine the gold market through the Basel III charter. Having lost control of the paper market, the West had no choice but to kill it, and the charter does this by defining physical gold as more valuable than paper gold. While paper gold remains a speculative asset, physical gold is now defined as top tire with zero risk, on par with the dollar and US treasury bills.

The decision was probably forced. The paper market allowed Russia and China to get physical gold at suppressed prices, draining Western gold reserves in the process. Had they done nothing, all Western gold would eventually end up in foreign possession. This would in turn make the West vulnerable to any move towards gold based currencies. Without gold, the West would be without access to Russian resources or Chinese products, should they at some point start demanding gold for their goods.

But it appears that Russia was once again one step ahead of everybody. Basel III came into effect at the end of June, the very moment Russia completed its swap of dollars for gold.

Going forward, Russia is likely to continue its gold accumulation. China and other export nations will do the same. Dollars will be swapped for gold whenever there's a surplus, sending gold higher against all currencies.

Vladimir Putin

By Kremlin.ru, CC BY 4.0, Link