China Needs $13,000 Gold Price To Implement Oil-For-Gold Contract
If China launches the highly anticipated oil-for-gold contract by the end of this year, those $10,000 forecasts for gold may be off by some 30%. Here’s how China could launch the new oil contract in just a few short months from now…
This Could Send Gold Much Higher Than $10,000
Jim Rickards is on record forecasting $10,000 gold.
But is China about to provide the catalyst to send gold even higher? And by how much?
Today, we fare forth in the spirit of speculation… follow facts down strange roads… and arrive at a destination stranger still…
China — the world’s largest oil importer — struck lightning through international markets recently.
According to the Nikkei Asian Review, China has plans to buy imported oil with yuan instead of dollars.
Exporters could then exchange that yuan for gold on the Shanghai Gold Exchange.
Not only would the plan bypass the dollar entirely… it would restore gold’s role in international commerce for the first time since 1971, when Nixon hammered the last nail through Bretton Woods.
If the rumors hold true, China’s plan could enter effect by the end of this year.
Billionaire business magnate and sound money advocate Hugo Salinas Price ran China’s plan through his calculator.
It turned up a basic math problem that spells drastically higher gold prices — if the plan is to work.
Details to follow.
But first some background on oil and gold… a brief detour down Bretton Woods Lane…
Washington found itself on the sharp hooks of a dilemma…
Dramatically raise the price of gold to limit redemptions — and devalue the dollar in the process — or repudiate its commitments under Bretton Woods.
Dishonor, that is… or dishonor.
It chose dishonor.
If China is willing to trade gold for oil under its latest plan, a similar dynamic enters play.
China takes aboard some 8 million barrels of oil a day.
That’s 2.92 billion barrels per year — nearly 3 billion in all.
But China holds only a few thousand metric tons of gold (officially about 1,850. Some estimate the true figure much higher).
You see the problem, of course.
China rapidly depletes its gold reserves if too many oil exporters choose to exchange yuan for gold.
If the plan’s to be sustainable at all, gold must rise — drastically — in order to balance the vast amounts of oil it’s supporting.
As Price explains, “To balance the mass of oil received by China against a limited amount of available gold… it will be necessary for gold to skyrocket upward in yuan terms and, necessarily, in dollar terms as well.”
Price crunched the numbers…
One ounce of gold (about $1,300) currently fetches 26 barrels of oil (about $50 per).
One barrel of oil is worth 1.196 grams of gold.
Price calls this ratio “an unsustainably low purchasing power of gold vis-a-vis oil.”
Only a drastically higher gold price would render the plan plausible.
How far would gold have to climb before the relationship was stable in Price’s estimate?
Ten times. Thus, Price arrives at a reasonable gold price:
$13,000 per ounce.
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