“Putin Will Accept Gold For Oil And Destroy The Dollar And Gold Reaches $3,600” by Investing.com

Investing.com – In a year of “unimaginable macroeconomic scenarios,” Credit Suisse’s Zoltan Pozar said it could rise to $3,600 an ounce if Russia accepts payments for gold after the imposition of a price cap on Russian oil by the G7.

In a note to clients, Bozar said a financial market liquidity crisis at the end of the year is unlikely to happen unless Russia decides to accept gold in exchange for oil in light of the sanctions.

While this outcome may seem out of this world, it is not so far-fetched given some of the geopolitical and macroeconomic surprises from this year, Bozar said in a note titled “Oil and Gold.”

Is it crazy?

surely

Is it very unlikely?

no!

Bozar continued in his note: “This was the year of unexpected macroeconomic scenarios and the return of statecraft as a dominant force driving monetary and financial decisions.”

In this made-up scenario, Russian President Vladimir Putin responds to the recently introduced oil price cap of $60 per barrel by ordering a gram of gold for two barrels of crude oil.

Pozar said that at current market prices, the maximum of $60 per barrel of Russian oil is equal to the price of one gram of gold. Essentially what’s happening here is that the United States pegs Russian exports to that price, and Russia, in turn, pegs them to . This will come at a time when the United States is working to refill its strategic reserves with cheap oil, after depleting the reserves to reduce gasoline prices.

If that happens, Pozar noted, what will happen is a revaluation of American versus Russian oil. Bozar said: “If Russia addresses the price peg of $60 by offering two barrels of oil for a gram of gold, it will double.”

And this is how the price of an ounce of gold rose from 1793 to 3600 dollars.

He continued, “Russia will not produce more oil, but it will ensure that there is sufficient demand to ensure that production is not suspended.” It would also ensure that more oil goes to Europe than to the United States via India. More importantly, gold rising from $1,800 to nearly $3,600 would increase the value of Russia’s gold reserves and gold production both at home and in a range of countries in Africa.”

But the doubling of gold would be problematic for banks involved in the futures markets, as most of them assumed that governments would not go back to paying for needs in exchange for commodities.

This has serious implications, Bouzar said: “Banks active in the paper gold market face a liquidity shortage, as all commodities active banks tend to be long derivatives that are not overlapped with futures (asymmetric liquidity position).” Bozar continued: “This is a risk that we do not think about enough and a risk that could complicate the situation at the end of next year, as a sharp move in gold prices could impose an unexpected mobilization of reserves (from the o/n RRP facility to banks) and expansions in balance sheets.” (SLR) and risk-weighted assets. That’s the last thing we need at the end of the year.”

On Monday, Russia’s seaborne oil price cap came into effect. It is enforced by the Group of Seven countries, the European Union, and Australia. Russia, the world’s second largest oil exporter, replied that it would not accept a price cap, even if it had to cut production.