Market News Will Russia go back to the gold standard? Analysts are not optimistic
Will Russia go back to the gold standard? Analysts are not optimistic
On June 5, market analysts Christian and Wagner argued that Russia did not return to the gold standard after the Ukraine war. Even if they did, the gold standard wouldn't work.
2022-06-06
7845
After Western countries successively announced that Russia would be excluded from the Swift financial trading system, the market began to discuss whether Russia would abandon the US dollar and restore the gold standard. Then the question came, is this feasible? Some analysts have put forward their own views on the above-mentioned issues.
On June 5, market analysts Jeff Christian and Gary Wagner believed that Russia did not return to the gold standard after the Ukraine war. Even if they did, the gold standard wouldn't work.
Central banks around the world have been raising interest rates. The Bank of Canada recently raised its key policy target to 1.5%. However, despite the tightening of monetary policy, gold prices have remained relatively flat.
Christian isn't surprised that gold prices haven't changed much. "Interest rates are still historically low and inflation-adjusted remains negative. Rising rates reflect inflation concerns, which is good for gold," he said. Rising "volatility and uncertainty" is good for gold, he said.
Wagner added: "The Fed's asset sales will affect gold demand, and the Fed is shrinking its balance sheet. Both (rising interest rates and asset sales) have a strong impact on demand because it's more expensive to do the commodity."
In March 2022, the speaker of the Russian parliament, Pavel Zavalny, said that countries could use gold to buy Russian resources. However, according to Christian, returning to the gold standard is a "Russian pipe dream". The reality is that in most cases no one actually pays in gold or rubles.
According to Christian, Russia's rhetoric about gold was a "face-saving" measure, with Russian energy company Gazprom simply accepting payments in euros and converting them into rubles.
Returning to the gold standard would be an "impossible task," Wagner said. While acknowledging the possibility of a return to some modified gold standard, he did not believe that any country would be able to back its currency against the dollar with gold. He believes that the amount of money in the system will consume too much gold.
Christian warns that some countries have historically adopted the gold standard, making their currencies freely convertible, but have suffered losses or troubles. In the 1960s, the United States lost 60 to 70 million ounces of gold as a result. Before that, when the Bank of England was on the gold standard, there had been runs.
In fact, in addition to these two analysts, Keith Weiner, a well-known precious metals analyst, also suggested that it would be difficult for Russia to return to the gold standard.
The Central Bank of Russia owns more than 2,000 tons of gold, worth about $130 billion. Russia’s GDP (gross domestic product) in 2020 was $1.5 trillion, and its imports in 2019 reached $247 billion, almost twice the size of its gold reserves.
Russia's gold reserves will last less than half a year unless Russian exporters pay it for gold, which is almost impossible. Energy exports are Russia's main source of income, and the current market price of Russian crude oil is below $18 a barrel, indicating a lack of interest in Russian oil. In this environment, paying in gold would be incredible, even if buyers could rekindle demand for Russian crude. Therefore, Keith believes, Russia does not have enough gold to implement the gold standard.
Spot Gold Daily Chart
At 14:38 on June 6, GMT+8, spot gold was quoted at $1,953.59 per ounce.
On June 5, market analysts Jeff Christian and Gary Wagner believed that Russia did not return to the gold standard after the Ukraine war. Even if they did, the gold standard wouldn't work.
Central banks around the world have been raising interest rates. The Bank of Canada recently raised its key policy target to 1.5%. However, despite the tightening of monetary policy, gold prices have remained relatively flat.
Christian isn't surprised that gold prices haven't changed much. "Interest rates are still historically low and inflation-adjusted remains negative. Rising rates reflect inflation concerns, which is good for gold," he said. Rising "volatility and uncertainty" is good for gold, he said.
Wagner added: "The Fed's asset sales will affect gold demand, and the Fed is shrinking its balance sheet. Both (rising interest rates and asset sales) have a strong impact on demand because it's more expensive to do the commodity."
In March 2022, the speaker of the Russian parliament, Pavel Zavalny, said that countries could use gold to buy Russian resources. However, according to Christian, returning to the gold standard is a "Russian pipe dream". The reality is that in most cases no one actually pays in gold or rubles.
According to Christian, Russia's rhetoric about gold was a "face-saving" measure, with Russian energy company Gazprom simply accepting payments in euros and converting them into rubles.
Returning to the gold standard would be an "impossible task," Wagner said. While acknowledging the possibility of a return to some modified gold standard, he did not believe that any country would be able to back its currency against the dollar with gold. He believes that the amount of money in the system will consume too much gold.
Christian warns that some countries have historically adopted the gold standard, making their currencies freely convertible, but have suffered losses or troubles. In the 1960s, the United States lost 60 to 70 million ounces of gold as a result. Before that, when the Bank of England was on the gold standard, there had been runs.
In fact, in addition to these two analysts, Keith Weiner, a well-known precious metals analyst, also suggested that it would be difficult for Russia to return to the gold standard.
The Central Bank of Russia owns more than 2,000 tons of gold, worth about $130 billion. Russia’s GDP (gross domestic product) in 2020 was $1.5 trillion, and its imports in 2019 reached $247 billion, almost twice the size of its gold reserves.
Russia's gold reserves will last less than half a year unless Russian exporters pay it for gold, which is almost impossible. Energy exports are Russia's main source of income, and the current market price of Russian crude oil is below $18 a barrel, indicating a lack of interest in Russian oil. In this environment, paying in gold would be incredible, even if buyers could rekindle demand for Russian crude. Therefore, Keith believes, Russia does not have enough gold to implement the gold standard.
Spot Gold Daily Chart
At 14:38 on June 6, GMT+8, spot gold was quoted at $1,953.59 per ounce.
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