SHOCKING! Russia To Trade Oil With Gold | G7 $60 Price Cap Backfires
Finance Untold
2022-12-07
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In a year of "unthinkable macro eventualities," Credit Suisse's Zoltan Pozsar believes gold might double to $3,600 an ounce if Russia responds to the G7's oil price cap by accepting gold in exchange for petroleum.
Pozsar stated in a client note that a year-end money-market liquidity crunch is unlikely unless Russia decides to take gold in exchange for oil in light of sanctions.
While this conclusion may seem out of this world, considering some of this year's geopolitical and macroeconomic surprises, Pozsar said in a note headlined 'Oil, Gold, and LCLo(SP)R.' "Crazy?
Yes.
Improbable?
No. This was a year of inconceivable macro eventualities and the return of statecraft as the driving factor behind monetary and fiscal decisions "Monday, Pozsar said.
In this scenario, Russia's President Vladimir Putin responds to the recently implemented $60-per-barrel oil price cap by requesting a gramme of gold in exchange for two barrels of crude.
According to Pozsar, the cap of $60 per barrel for Russian oil at current market rates equals the price of one gramme of gold.
In essence, the US pegs Russian export at this price, and Russia, in turn, pegs it at a gramme of gold.
This would occur at a time when the United States is seeking to replenish its strategic stockpiles with cheap petroleum.
According to Pozsar, in this case, "the US dollar basically gets'revalued' vs Russian oil."
"However, if the West is searching for a deal, Russia can offer one that the West cannot refuse: 'a gramme for more.' If Russia responded to the $60 price peg by providing two barrels of oil at the peg for a gramme of gold, gold prices would quadruple "Pozsar explained.
This is how gold may rise from $1,794 per ounce to $3,600 per ounce.
"Russia will not produce additional oil, but will ensure that there is enough demand to keep production from being shut down.
It would also ensure that more oil is routed to Europe rather than the United States via India.
Most importantly, a rise in gold prices from $1,800 to close to $3,600 would raise the value of Russia's gold holdings and output at home as well as in a number of African countries "Pozsar explained.
However, doubling gold would be problematic for banks active in futures markets because most have anticipated that governments will not return to paying for things with commodities.
"All banks operating in commodities tend to be long OTC derivative receivables hedged with futures (an asymmetric liquidity position)," Pozsar noted.
"That's a risk we don't think about enough, and it might complicate the coming year-end turn, since a big rise in gold prices could compel an unexpected mobilisation of reserves (from the o/n RRP facility to banks) and balance-sheet expansions (SLR and risk-weighted assets).
That's the last thing we need near the end of the year."
The price cap on Russian seaborne oil went into force on Monday.
The G7, the European Union, and Australia are enforcing it.
Pozsar stated in a client note that a year-end money-market liquidity crunch is unlikely unless Russia decides to take gold in exchange for oil in light of sanctions.
While this conclusion may seem out of this world, considering some of this year's geopolitical and macroeconomic surprises, Pozsar said in a note headlined 'Oil, Gold, and LCLo(SP)R.' "Crazy?
Yes.
Improbable?
No. This was a year of inconceivable macro eventualities and the return of statecraft as the driving factor behind monetary and fiscal decisions "Monday, Pozsar said.
In this scenario, Russia's President Vladimir Putin responds to the recently implemented $60-per-barrel oil price cap by requesting a gramme of gold in exchange for two barrels of crude.
According to Pozsar, the cap of $60 per barrel for Russian oil at current market rates equals the price of one gramme of gold.
In essence, the US pegs Russian export at this price, and Russia, in turn, pegs it at a gramme of gold.
This would occur at a time when the United States is seeking to replenish its strategic stockpiles with cheap petroleum.
According to Pozsar, in this case, "the US dollar basically gets'revalued' vs Russian oil."
"However, if the West is searching for a deal, Russia can offer one that the West cannot refuse: 'a gramme for more.' If Russia responded to the $60 price peg by providing two barrels of oil at the peg for a gramme of gold, gold prices would quadruple "Pozsar explained.
This is how gold may rise from $1,794 per ounce to $3,600 per ounce.
"Russia will not produce additional oil, but will ensure that there is enough demand to keep production from being shut down.
It would also ensure that more oil is routed to Europe rather than the United States via India.
Most importantly, a rise in gold prices from $1,800 to close to $3,600 would raise the value of Russia's gold holdings and output at home as well as in a number of African countries "Pozsar explained.
However, doubling gold would be problematic for banks active in futures markets because most have anticipated that governments will not return to paying for things with commodities.
"All banks operating in commodities tend to be long OTC derivative receivables hedged with futures (an asymmetric liquidity position)," Pozsar noted.
"That's a risk we don't think about enough, and it might complicate the coming year-end turn, since a big rise in gold prices could compel an unexpected mobilisation of reserves (from the o/n RRP facility to banks) and balance-sheet expansions (SLR and risk-weighted assets).
That's the last thing we need near the end of the year."
The price cap on Russian seaborne oil went into force on Monday.
The G7, the European Union, and Australia are enforcing it.
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