Tuesday, April 24, 2012

India and China to buy oil with Gold

It seems India and China have agreed to pay Tehran in gold for the oil they buy.

India is importing 14 million tonnes of oil from Iran and has agreed to pay for it with gold. A report issued by the news website DEBKAfile, states that Iran and India are currently negotiating backup alternatives with China and Russia, should the US and EU locate a way to block any gold payment for oil unlikely as that may be.

Although the US and EU have issued unilateral sanctions against Iran complete with a removal from the SWIFT banking payment system, India and China are prepared to fly in the face of the sanctions issued to ban any bank involved in oil trade with Iran from dealing with American and European counterparts.

According to Jim Sinclair, “It is reasonable to assume that China has been threatened with total or at least selective exclusion from the SWIFT system if it pays in any currency for Iranian oil.”

Considering the enormous amount of trade the US and Europe do with both the giant Asian economies that seems somewhat of an empty threat and both China and India know this. The Asia Pacific currently accounts for 13 percent of SWIFT’s financial traffic and 15 percent of its total revenue. Not something to be discounted lightly.

It has also recently been reported:

"China's imports of the metal are already large, and you can guess what additional purchases are going to do to prices. On the last day of 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2012. The NDAA, as it is called, attempts to reduce Iran's revenue from the sale of petroleum by imposing sanctions on foreign financial institutions conducting transactions with Iranian financial institutions in connection with those sales. This provision, which essentially cuts off sanctioned institutions from the U.S. financial system, takes effect on June 28."

India and China the two major buyers of Iranian oil, accounting for 22 and 13 percent of its total export respectively, have refused to join such sanctions. This means they have to establish a reliable way of paying for crude, independently of the parts of the global financial system controlled by New York and London. This, apparently, is going to be gold. Perhaps this is the first step to gold being used for major trading and the demise of the US dollar as the world’s reserve currency.

As China is building massive reserves of gold both in its own mining activities, major purchases of gold AND even buying up gold mines around the world, it appears it is gearing up for a gold trading based economy in the future.

Sinclair also commented. "Gold has been decided by China as the means of making payment for massive international purchases free of the SWIFT system."

This would cause other nations to view gold as a trading method free from the economic influence of western nations. "As paper money is under the control of the SWIFT system and now being used as a weapon rather than an economically efficient transfer of value system, nations will start to look elsewhere for alternatives and gold being a traditional method will be the first in line for consideration." Said another analyst.

Questions will then rise on the amount of gold available for trading as, "It is reasonable and possible for the supply of physical gold to fall far behind the size of the massive short positions now common to algorithm and hedge fund paper shorts. That will make an effective cover at a reasonable price as compared to a certain day’s close impossible the following day on an exogenous event." As Sinclair points out.

Japan and South Korea, two other major buyers of Iranian crude, are also concerned about the oil embargo and they have plenty of gold too.

The German political analyst Christoph R. Horstel recently stated, “All the present faithful customers to Iran oil are set to continue buying this oil, and they will find a way, rest assured,” he said. “This is the signal I get from Tehran.”

"I was personally present when the deputy economics minister of Iran was talking to a foreign society in Berlin," he added. “And the gentleman said very openly to the shocked audience 'OK. You don’t want to buy our goods. Well, the Chinese do'."

Currently gold is very cheap but is evidently going to become VERY valuable in the coming months as this scenario with Iran plays out and likely India and China set to buy oil with gold is only the beginning.


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