By Jorge Vilches for the Saker Blog
Brexitology focused keenly on UK fish but fully ignored the EU´s gigantic gold reserves supposedly still vaulted in custody at the Bank of England. Adding insult to injury, a UK-EU no-deal financial services crash-out divorce went by almost unnoticed… not only without the bang of the still postponed “financial equivalence” protocol… but also without a mere whimper from specialized media and Remainers. Now, the Ukraine crisis with its new payment requirements for the badly needed Russian oil & gas…overlapping with essential yet unfinished Brexit business…will necessarily evolve into a vicious NATO internal gold war. Paraphrasing James Carville spiced with some traditional British flavour, “It´s the bloody gold, stupid”
Rule Britannia
As UK Prime Minister Boris Johnson would have it, the physical repatriation of the EU gold supposedly still vaulted in London would “mightily” affect the future of Europe with very deep, high-voltage political impact both sides of the English Channel. In this scenario No.10 Downing Street would easily negotiate the EU gold bullion availability only under specific Brexit conditions favourable to the UK. Actually, doing this could turn out to be absolutely necessary and should go far beyond the enormous intrinsic value of the EU gold supposedly still vaulted at the BoE. Let me explain.
NATO gold in London
Russia´s new rubbles or gold payment requirements for any of its goods or services will necessarily prompt a major gold war between the UK and the EU probably resulting in NATO´s first-ever internal head-on gloves-off confrontation. After WW2 the idea was to keep Europe´s gold bullion safely away from the former Soviet Union and Josef Stalin, just in case. So decades ago current EU member states deposited most of their gold in custody at the Bank of England (BoE) in London. Now, the UK will dare to weaponize the approval of EU gold repatriation requests and other gold-related issues as a very convincing bargaining tool for lots of still unfinished yet most important Brexit business. So,
(a) Whitehall could indefinitely delay the EU gold delivery unless Brexit pending issues are agreed in favour of the UK.
(b) Or, quite simply, the BoE would not ever return such EU gold supposedly kept in custody for the past decades because it has been partially or totally sold off or loaned out or compromised as explained below with former UK Prime Minister James Gordon Brown knowing about it all too well.
The Mother of European conflicts
If history is any guide, hostilities will explode the instant the EU member states individually or collectively rightfully demand a yet-non-existent fully independent world-class functionally detailed audit of the EU gold supposedly still in ´custody´ at the BoE. This should take plenty of time and is the perfect excuse for delaying the whole process always under the exclusive preview of London, not Brussels. Or unmanageable problems would arise as soon as EU nations require immediate repatriation of at least some of such ´theoretical´ bullion, most probably all of them at the same time in view of circumstances. Then, either (1) some gold could possibly slowly be returned here and there (albeit with great delay ) but only under very vague London terms and changing the unfinished Brexit aftermath to levels yet unheard of, or (2) no gold would be returned as it has been sold off or compromised in different ways as explained hereinafter. And the UK better not decide to pay Russia even with a single gold coin as the EU would rightly wonder who owns it.
BoE darkness
The London gold and silver markets have always been beyond “opaque” without any significant reporting of transactions or positions. No data has ever been offered either on commercial banks holding accounts at the BoE, or precise technical identification of gold custodies, let alone those belonging to EU members. As Venezuela knows all too well – and EU member states could be next — who may or may not be acknowledged as a valid claimee of anything vaulted in Threadneedle Street or whereabouts is an open subject left to the entire discretion of the Canary Wharf masters, not EU politicians. Same goes for the enormous unallocated gold and silver liabilities of the so-called ´bullion banks´… or any other pertinent data.
The (bad) German experience
Very recently Germany had to wait 5 long years to forcefully and painfully repatriate only a portion of its gold from the BoE and never got back any of the gold bars originally deposited, which clearly explains the delay. So while the EU freezes to death and its economy stops dead in its tracks, the many pending questions include
(a) does the BoE still have all of the EU´s gold bullion… or has it been sold off or loaned out as many experts insist ?
(b) is the BoE willing and able to immediately return the EU gold it may still have left to legitimate owners, if any ?
(c) who are the legitimate owners of BoE-vaulted gold after decades of European reshuffling of political borders ?
(d) would the ECJ decide gold ownership… or the British Judiciary… or the BoE ? On what basis, exactly ?
(e) has the BoE lent, swapped, re-hypothecated, leased, leveraged or encumbered such bullion now lien with other many alleged legitimate claimees also standing in line with ´fractional un-allocated synthetic´ bullion custodies unfit-for-purpose per “Digital Derivative Pricing Schemes“ thru which no one can know who owns what where (if anything) ?
I kid you not.
Today´s “paper gold” derivative transactions constitute a genuine pure-bred Ponzi scheme exceeding many-fold the real gold bullion theoretically behind them, probably with a 100 to 1 ratio or higher as London´s Square Mile knows all too well. Of course, the ECB, the IMF and the BIS would also claim it actually is “their” gold no ?British economist Peter Warburton was 100% correct when he described that Westerncentral banks were using derivatives to control commodity prices and protect government currencies against the public’s recognition of currency devaluation. Warburton’s essay “The Debasement of World Currency: It Is Inflation But Not as We Know It” is posted at https://www.gata.org/node/8303
But however it unfolds, the “continental gold” now possibly still vaulted in London will necessarily trigger an internal NATO existential conflict in no uncertain terms (and desperation) in absence of the much-needed audit parameters and still missing gold bar serial numbers records affecting ownership and status claimed by more than one (supposedly legitimate) recipient, plus gold bullion quality and purity data, overdue custody costs, transportation & insurance, etc.In passing, when push gets to shove (and it will, trust me) per their ´special relationship´ the US Federal Reserve would side with the BoE because it finds itself in exactly the same situation regarding the physical bullion they should still be theoretically vaulting for third parties, sovereigns included. In synchronized lockstep with Anglo-Saxon exceptionalism, the Fed´s gold custodies have never been audited either — as they should have – and the specialized commentariat worldwide is convinced that such bullion is not fully available either. Furthermore, the US would welcome any new additional problems for the EU as that was the whole idea behind provoking Russia into this unnecessary war.
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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.
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