Here we have the newest development against the US dollar wars. China has just decided to trade hard gold for Iranian oil in order to both avoid use of the petrodollar as well as avoiding the sanction rules. Iran is the third largest oil producer in the world.
I saw this coming four years ago. First we had China making currency swap deals with small countries such as Malaysia, Belarus and Turkey. Then larger and more important countries like Brazil, Russia and the Middle East oil producers joined in too and, earlier this year, 10 ASEAN Nations also arranged currency swap deals with China. Then India and China took the huge step of arranging currency swaps worth billions with Japan. And, not that long ago we heard that India, due to her large demand for oil, has now agreed to pay for her Iran oil by using both gold and rupees(thus ignoring the intermediary dollar).
Now we have China, as well as India, agreeing to pay for her Iranian oil with hard gold to avoid UN sanction penalties.
But, perhaps, the best definition of exactly what effect this will have on the abandoned petrodollar was written by Jim Sinclair. This man knows all about gold:
The SWIFT (Society for Worldwide Interbank Financial Telecommunication) system is the computer/telecom network system that controls all interbank transfer of funds worldwide. It is a part of the Anglo-American Illuminist financial hegemony. Once a country is locked out of the system, it can no longer execute payments to foreign countries/companies ie. it can no longer conduct international trade via fiat currencies. The way out is via bartering or international trade settlement via gold. Quite obviously, America has declared economic war on Iran and any country which defy America will face sanctions.
The Implications Of China Paying In Gold !
by Jim Sinclair, http://www.jsmineset.com/
The implications of China paying for Iranian oil in gold is the most important event in the modern history of gold.
1. It is reasonable to assume that China has been threatened with total or at least selective exclusion from the SWIFT system if it pays in any currency for Iranian oil.
2. Gold has been decided by China as the means of making payment for massive international purchases free of the SWIFT system.
3. Other Asian and Middle Eastern nations will now see the gold they hold as money free of Western economic interference.
4. Gold now is not only money free of liability, but also free from interference regarding settlement by the long arm of Western influence.
5. The SWIFT system is becoming ever more a weapon of Western international political will.
6. In case of war anywhere, it is now demonstrated for all to see that only gold will buy the materials required. Paper currencies are under the SWIFT system’s control in settlement.
7. Far from being a barbaric relic, gold is now clearly the money of state survival in every sense.
8. It is reasonable and possible for the supply of physical gold to fall far behind the size of the massive short positions now common to algorithm and hedge fund paper shorts. That will make an effective cover at a reasonable price as compared to a certain day’s close impossible the following day on an exogenous event.
9. It may not be possible to use TA of any nature to determine a price of overvaluation for gold. Should the USA decide to take on China in full out economic war with the physical market totally illiquid, such as through isolation from the SWIFT system, consider the gold price that might result.
China will start buying oil for gold on June 28, 2012. and her government appears to be in the process of actually monetizing gold.
So this news is very bad indeed for the US dollar and hugely positive news for gold. Less need for the trade dollar means less US Treasuries bought by other foreign countries worldwide which means even less free credit for America from these foreign mercantilists. Well Oh Dear !!
And what effect will a trashing dollar have on the US economy's relatively unnoticed "recovery"?
You wont read about this in the WaPo, NYT or any other large media outlets in the US but it certainly looks like the "Barbaric Relic" is making quite a comeback. Such a shame about the dollar though.