Zoltan Pozsar: If Russia accepts gold in exchange for oil, the price of the metal will double

Zoltan Pozsar, head of global strategy at Credit Suisse, says gold is unlikely to double to $3,600 an ounce if Russia reacts to the G7 lowering the oil price ceiling by accepting gold in a year of “unthinkable macro scenarios”. as payment for its crude oil.

In a note to clients, Pozsar said that if Russia does not decide to buy gold in exchange for oil after Western sanctions, the liquidity crisis in the money market will be difficult at the end of the year.

While this scenario may sound extravagant, given the many geopolitical and macroeconomic surprises this year, Pozsar notes in a note titled “Oil, Gold and LCLo(SP)R,” it is not so realistic. Strategic Petroleum Reserves). “Madness? Yes. Unlikely? No. This year has been marked by implausible macroeconomic scenarios and the return of political skill as the dominant force in monetary and fiscal decision-making.”Pozsar wrote on Monday.

In this scenario, Russian President Vladimir Putin reacts to an end to oil prices at $60 per barrel and demands one gram of gold for every two barrels of crude oil.

Pozsar said that at current market prices, the limit of $60 per barrel of Russian oil is equal to the price of one gram of gold. What is essentially happening here is that the US sets Russian exports at this price, and Russia, in turn, sets it at one gram of gold. And this comes at a time when the United States is eager to replenish its strategic reserves with cheap oil.

In this example, “the US dollar has actually been ‘revalued’ against Russian oil,” Pozsar noted. “But if the West is looking for a deal, Russia can offer them something they can’t refuse: ‘a gram for more’. If Russia avoids the $60 price tag by offering two barrels of oil for one gram of gold, the price of gold doubles.” – said Pozsar.

Thus, gold may reach $3,600 from the current level of $1,794/oz.

“Russia is not going to produce more oil, but it will ensure that there is enough demand to not cut production. It will also ensure that more oil is sent to Europe and not to the United States. Most importantly, gold will rise from $1,800. About $3,600 is Russian gold. will increase the value of its reserves as well as its domestic gold production and value in several African countries,” Mr. Pozsar described.

But if the price of gold were to double, it could spell trouble for banks involved in the futures markets, as most of them assumed that governments would not return to paying for commodities.

“Banks active in the paper gold market will face liquidity shortages because all banks active in commodities are long in OTC derivative claims covered by futures contracts (asymmetric liquidity position),” Pozsar wrote. “This is a risk we have not thought enough about and could complicate the next turnaround at the end of the year, as sharp swings in gold prices could force unexpected reserve mobilization (from overnight repos to banks) and expansion of balance sheets (SLRs) and risk-weighted assets. That’s the last thing we need at the end of the year.”

On Monday, a limit on the price of Russian oil transported by sea came into force. Implemented by G7, European Union and Australia. Russia, the world’s second largest oil exporter, has said it will not accept the price cap even if it has to cut production.

Original Source: markets.businessinsider.com

Leave a Reply

Your email address will not be published. Required fields are marked *