Russia Makes the First Call for the Monetization of Gold

Russia is proposing the inclusion of the ruble, yuan and gold as a part of a revised basket of currencies to form the valuation of the IMF’s special drawing rights seen as the coming new alternative global reserve currency, reported AP.

At a summit meeting yesterday, Russia and China challenged the reserve currency status of the dollar with two initiatives, while at the same time professing their support for the greenback in which both countries have huge bond holdings.

Gold for SDRs

China is to extend a $10 billion loan to a regional group that comprises Russia and four central Asian states, presumably money that would previously have bought US bonds. And Russian president Dmitry Medvedev called for the strengthening of the international monetary system ‘not only by making the dollar strong, but also by creating other reserve currencies’.

Senior Kremlin officials told a briefing that Russia may invest in bonds issued by Brazil, China and Russia, and that they want the ruble, yuan and gold to be part of a revised basket of currencies to form the valuation of the IMF’s SDRs.

Officials said that this process ‘can’t happen fast’ and that currency shocks were ‘not wanted now’ and that ‘no one wants to bring the dollar down’.

However, it is of course the imminence of the soaring US budget deficit that will likely boost inflation that has heightened worries among US bond holders about the value of the greenback, and stimulated the search for an alternative.

Gold price low

That gold should be included in SDRs is a new proposal, and likely to be seen among Arabs and investors around the world as a further reason to buy gold at present prices.

All the studies into the monetization of gold have concluded that the value of the precious metal would soar under such a scenario because of its relatively tight supply. It would therefore seem logical for anybody planning to buy a few ounces or 100 tons of the precious metal to buy before prices start to really escalate.

For gold it would seem the only way for prices is up as it becomes part of the world’s fight back against inflation and devaluation of the US dollar.

Comments

[Mad Hedge F...:]

The RSX itself may do better than gold. Last January I was extremely positive about building long equity exposure in Russia, one of the two BRICKS that is a big energy exporter (See www.madhedgefundtrader...). I predicted that the RSX would deliver double the upside of the S&P 500. Well I lied. It actually came in at 2.4 times the US market performance. It even would have worked as a pairs trade, long Russia, short the US. This turned out to be an oil play on steroids, and a recovery in the ruble gave you a nice hockey stick effect in the dollar traded ETF. The bounce in the Russian currency stopped the country’s reserve outflow dead in its tracks, and enabled the Russian Central Bank to start shaving interest rates from the nosebleed territory of 13%. There is plenty of room for further cuts. Russia is not out of the woods yet. Some 30% of the $780 billion in corporate debt is due for rollover this year, the unemployment rate is at 9.5% and climbing, and ruble short term rates are at a sky high 15-20%. It also doesn’t help that they lock up oligarchs on bogus tax charges, and will expropriate foreign assets, as they did with Shell, at the drop of a hat. But none of my investors told me I could only do business with nice people who gave me a warm and fuzzy feeling. I had to bribe my late wife out of Moscow’s notorious Lubyanka prison once. But a rising oil price atones for all sins. Use this dip in crude to add to your positions, but watch out for the volatility.

Jun 17 05:54 AM

[doubleguns:]

China and Russia support the dollar but they want to replace it.

Who is buying this double speak? They want out of the dollar as fast as they can.

GET GOLD.

Jun 17 08:49 AM

[Gyoza Mimi:]

Despite Russian's view of itself as a superpower that can suggest using its Rubles as part of the new alternative global reserve currency, the reality is Meggie Thatcher was spot on when she called Russia (almighty Soviet Union back then) an "Upper Volta with nuclear weapons". Medeveev can make suggestions, of course. And so can Bob Mugabe by proposing to make Zimbabwe's dollar the world currency. Aside from muted laughs about stupidity of the idea there will be very little reaction from other players, though.

Jun 17 10:03 AM

[Old Trader:]

Whenever I hear about conferences like this, I find myself wishing I could be a fly on the wall during the "private" meetings, cocktail receptions, etc., so I could know what's really being said and mooted about, rather than having to rely on the "official statements" and comments made to the media for publication.

Jun 17 10:46 AM

[User 357705:]

Whatever they decide to do USA can only bellow, stomp its feet and throw itself on the floor!

Jun 17 01:34 PM

[Roger Knights:]

"Whenever I hear about conferences like this, I find myself wishing I could be a fly on the wall during the "private" meetings, cocktail receptions, etc., so I could know what's really being said and mooted about, ..."

I wonder if their public talk about a basket of currencies and commodities, and of there being no alternative to the dollar (what about gold?) is mostly camouflage to avoid creating a disruption in the currency markets, and that the real point of the conference is to discuss the ways and means of getting to a mostly gold-backed currency. If that was indeed its real point, concealment would be needed to avoid driving up the gold price before the instigators acquired their share of it. If some sub rosa agreement has been made to reinstate the monetary role of gold, or at least to think seriously about it, you can be sure that outsiders wouldn’t be told in advance.

NB: "Cui Bono?" is usually a good question. It almost answers itself--and explains a great deal: Three of the BRIC countries are major gold producers and the fourth, India, has large reserves that only its own stupid regulations (recently revised) have kept from being developed. They'd all benefit from the monetization of gold.

Jun 17 01:46 PM

[inflation:]

Very good point. I do not think they would make that public knowledge until they had a workable plan in place. All the pollyanna talk about how there is no way they can go away from the dollar is just that. Talk. We think we are so much smarter than everyone else in the world and maybe we are. Then again, maybe we vastly underestimate the intentions of the countries that may be a little sick and tired of being pushed around by the good ole' U.S. of A. These guys are not blind to what is going on. They see that all we are doing is creating inflation and that is how we plan to get out of the hole that we dug for ourselves. Maybe they are finally sick of financing our excesses.


On Jun 17 01:46 PM Roger Knights wrote:

> "Whenever I hear about conferences like this, I find myself wishing
> I could be a fly on the wall during the "private" meetings, cocktail
> receptions, etc., so I could know what's really being said and mooted
> about, ..."
>
> I wonder if their public talk about a basket of currencies and commodities,
> and of there being no alternative to the dollar (what about gold?)
> is mostly camouflage to avoid creating a disruption in the currency
> markets, and that the real point of the conference is to discuss
> the ways and means of getting to a mostly gold-backed currency. If
> that was indeed its real point, concealment would be needed to avoid
> driving up the gold price before the instigators acquired their share
> of it. If some sub rosa agreement has been made to reinstate the
> monetary role of gold, or at least to think seriously about it, you
> can be sure that outsiders wouldn’t be told in advance.
>
> NB: "Cui Bono?" is usually a good question. It almost answers itself--and
> explains a great deal: Three of the BRIC countries are major gold
> producers and the fourth, India, has large reserves that only its
> own stupid regulations (recently revised) have kept from being developed.
> They'd all benefit from the monetization of gold.

Jun 17 02:52 PM

[User 357705:]

We Have A Winner!


On Jun 17 02:52 PM inflation wrote:

> maybe we vastly underestimate
> the intentions of the countries that may be a little sick and tired
> of being pushed around by the good ole' U.S. of A. These guys are
> not blind to what is going on. They see that all we are doing is
> creating inflation and that is how we plan to get out of the hole
> that we dug for ourselves. Maybe they are finally sick of financing
> our excesses.

Jun 17 02:55 PM

[AuGod!:]

With all that has been monetized and will soon be monetized, gold seems a no-brainer. But I think the "market" monetized gold 5000+ years ago. The blip in between is more a declaration of policy, a leadership aberration, where once upon a time a "Through the Looking Glass" of sorts took place and only debt was thought worthy. Now to monetize something of value with no counterparty risk??!! Gad, the mountains will shake and rivers boil and all the Keynesian economic geeks will break out with roids.

Jun 17 03:02 PM

[JoeSixPack:]

The key is tha tthey do have nuuclear weapons, and in league with Brazil, India and China they do have some influence. Do not underestimate them. Remember the third little piggy built his house out of BRIC . You remember what happened to the other two?

Fortunately, the US has one of the largest gold reserves (at least it is claimed so).

On Jun 17 10:03 AM Gyoza Mimi wrote:

> Despite Russian's view of itself as a superpower that can suggest
> using its Rubles as part of the new alternative global reserve currency,
> the reality is Meggie Thatcher was spot on when she called Russia
> (almighty Soviet Union back then) an "Upper Volta with nuclear weapons".
> Medeveev can make suggestions, of course. And so can Bob Mugabe by
> proposing to make Zimbabwe's dollar the world currency. Aside from
> muted laughs about stupidity of the idea there will be very little
> reaction from other players, though.

Jun 17 03:27 PM

[JoeSixPack:]

I suspect they will create a basket of many currencies, but they need time to divert their dollars to buying those other currencies (including gold of course).


On Jun 17 01:46 PM Roger Knights wrote:

> "Whenever I hear about conferences like this, I find myself wishing
> I could be a fly on the wall during the "private" meetings, cocktail
> receptions, etc., so I could know what's really being said and mooted
> about, ..."
>
> I wonder if their public talk about a basket of currencies and commodities,
> and of there being no alternative to the dollar (what about gold?)
> is mostly camouflage to avoid creating a disruption in the currency
> markets, and that the real point of the conference is to discuss
> the ways and means of getting to a mostly gold-backed currency. If
> that was indeed its real point, concealment would be needed to avoid
> driving up the gold price before the instigators acquired their share
> of it. If some sub rosa agreement has been made to reinstate the
> monetary role of gold, or at least to think seriously about it, you
> can be sure that outsiders wouldn’t be told in advance.
>
> NB: "Cui Bono?" is usually a good question. It almost answers itself--and
> explains a great deal: Three of the BRIC countries are major gold
> producers and the fourth, India, has large reserves that only its
> own stupid regulations (recently revised) have kept from being developed.
> They'd all benefit from the monetization of gold.

Jun 17 03:28 PM

[jepittman:]

Funny. Thats how I think about them.


On Jun 17 01:34 PM User 357705 wrote:

> Whatever they decide to do USA can only bellow, stomp its feet and
> throw itself on the floor!

Jun 17 03:31 PM

[5142152-337:]

Right on, Peter!

Obama-momma just gave the IMF 108 BILLION smackers to "cover them through the near term". Hey, its just another hand-out of taxpayer money to an entity that will serve Obama-momma later. He's buying the yuan!

Jun 17 03:34 PM

[Nathaniel C:]

Call me old fashioned, but I do not want a basket of reserve currencies with a dash of gold mixed in (dont trust the ruble or yuan). I want a gold standard that will provide true price stability and maintain purchasing power. Replacing the dollar with other fiat currencies does not solve the long-term problems of inflation and currency debasement. Only a gold standard will solve these problems.

Jun 17 04:55 PM

[Plebian:]

Finally, an admission in the mainstream media that the US Fed 'manages' gold prices? You be the judge...

www.thestreet.com/prin...

Jun 17 07:17 PM

[KIT:]

The US printed money to cover shortfall in Europe last fall. Are Russia Brazil and China prepared to do the same or are they just self serving

Jun 17 08:06 PM

[Speedspirit:]

Anyone ever hear of the Euro, how about the American Euro. And how do you bring it about? Create the collapse of the doillar and join with Mexico for cheap labor join with Canada for resources and for them thier security. Now you have a North America free trade agreement and a new currency. Problem solved and more Govt control, bigger Govt and more taxes to pay for it. Trust them it will all be okay in the end!

Jun 17 10:20 PM

[cameroni:]

I think ideally that the BRIC would like to see a new reserve currency being developed while the greenback is still worth something. They could then shift from one to the other with limited losses. Now that the subject of Gold forming part of a new reserve currency has finally come out of the closet it could become a tremendous buy.

But don't go too crazy just yet. It is still just small talk.


On Jun 17 08:49 AM doubleguns wrote:

> China and Russia support the dollar but they want to replace it.
>
>
> Who is buying this double speak? They want out of the dollar as fast
> as they can.
>
> GET GOLD.

Jun 21 08:59 PM

[cameroni:]

I really would not be surprised to see the "Amero" emerge in the next decade based on a North American common market but it would likely mean more open borders similar to the European model. And that is problematic if we cannot raise the standard of living in Mexico to the levels all the rest of us enjoy.

An Amero currency could easily function as the worlds reserve currency with Canada, Mexico and the US representing the largest trading bloc in the world, bar none.

The uncomfortable part of this though is that it would just be a matter of time before the Amero, the Euro and the proposed IMF SDR are amalgamated into a "World Currency"

Might be interesting. Imagine a G20 currency based around gold reserves. This seems a likely outcome to me because there is not total trust amongst the G20 to start with. A new gold standard would reduce the ability of any one member from manipulating to it's advantage. Just speculating now of course....but what if.
On Jun 17 10:20 PM Speedspirit wrote:

> Anyone ever hear of the Euro, how about the American Euro. And how
> do you bring it about? Create the collapse of the doillar and join
> with Mexico for cheap labor join with Canada for resources and for
> them thier security. Now you have a North America free trade agreement
> and a new currency. Problem solved and more Govt control, bigger
> Govt and more taxes to pay for it. Trust them it will all be okay
> in the end!

Jun 21 09:12 PM

[dustbusterz:]

* Gyoza Mimi:
says(Despite Russian's view of itself as a superpower that can suggest using its Rubles as part of the new alternative global reserve currency, the reality is Meggie Thatcher was spot on when she called Russia (almighty Soviet Union back then) an "Upper Volta with nuclear weapons". Medeveev can make suggestions, of course. And so can Bob Mugabe by proposing to make Zimbabwe's dollar the world currency. Aside from muted laughs about stupidity of the idea there will be very little reaction from other players, though. )

It really is not about the Russian Ruble becoming the next reserve currency. You must read between the lines here. What is happening is Russia along with other nations like China,and Brazil are making these statements in an effort to draw support for a new world currency. Not necessarily (the Ruble)but some Currency other than the Dollar. With these constant little noises, each time they are made, it urges a little more concern in other Nation's Minds,there by leading (eventually) to a Big Demand for a new currency.Its well thought out and being well played out as well.

All the while they claim to support the Dollar, and Americans(for the most part ) have this convoluted idea the Dollar can never be replaced as the World Currency.Watch out below.Please don't be standing under this Dollar as it falls.

Aug 12 12:33 AM