by Jim Willie, Gold Seek:
The Gold Trade Note is gradually coming into view, its form within structured contracts is taking shape as components. the Petro-Dollar has almost completely vanished. The Petro-Yuan is essentially here in its infancy, in rudimentary form. the leap to the Gold Trade Note will be easy, once the pieces are aligned and in place. This new note for usage in secure trade settlement is in the inception process. It will be structured within existing trading vehicles and platforms. The Russians and Chinese appear to be forming the basis for the payment vehicle within the oil trade. Consider it as a formal reflection of the Iran-India gold for oil trade.
Bilateral Oil for RMB Sale + Shanghai Gold Exchange = Gold Trade Note
This triangle is precisely what China and Russia are doing now. Russian oil & gas is being sold for Chinese Yuan, and then Yuan is traded for Gold at the Shanghai Gold Exchange. The trade is not complex at all. Oil for RMB for Gold, creating a transaction payment in gold terms. The part unclear is posted margin to confirm and seal the transaction. The immediate implication is that the Chinese RMB will have a quasi-gold link. The original model used might have been the Iranian oil sales to India, with payment completed using Turkish gold. Such gold for oil trade appears to have been commonly executed from 2006 to 2010, and likely beyond that date. The Jackass has been expecting that the Gold Trade Note would be structured in a clever way, using swap contracts in major global commerce. It might be taking form in the triangle cited as the working template. Oil is the biggest commercial trade item. Soon comes the RMB-based contract for crude oil, traded in Shanghai. It will surely cause big waves, a major disruptive event.
STANDARDS AND CYCLES ANEW
The Petro-Dollar system has stood for 45 years. It has decayed into tatters. Its derivative foundation is being liquidated, a long painstaking process. A new disruptive model was forged in 2014 when Iran sold India oil, which was paid in gold, but delivered from Turkey. Gradually emerging is the Gold Trade Note, first in oil payment then later in general payments in shipped goods. It is evolving within the Chinese market from Russian energy sales, all conducted outside the USDollar sphere.
GOLD ENTERS THE TRADE EQUATION
Examine the many components for the demise of the Petro-Dollar, the fading importance of the USTreasury Bond, the chronically supressed Gold market, and the emerging structure of the oil trade among the Eastern superpowers. Grant Williams lays it out in wonderful style in a recent Zero Hedge article, truly great work. See Zero Hedge (HERE). Take it one step further. The Russians as primary oil producers have the ability to sell oil in RMB terms, accept the Chinese currency and purchase gold at the Shanghai Gold Exchange. Soon the Chinese can better organize their oil purchases from other nations. The vendors can turn around and do the same, convert the RMB into gold in Shanghai. The Petro-Dollar has been effectively replaced with the mechanisms of a Petro-Yuan erected on the Gold table. The Chinese are putting in place a link between oil and gold, once again like before the Bretton Woods Gold Standard was violated by Nixon in 1971. The Gold Standard is emerging, with respect to the oil market.
The next step to standardize the entire global commerce with gold payments can be fashioned in much the same way. The Gold Trade Note is coming into view, carved and sculpted by Chinese hands within the transacting of Russian oil. In time, ships bearing containers and dry goods will be paid in gold terms. It might be done with the RMB in intermediary function, but the conversion to gold will be everpresent soon. The USTreasury Bond in its entirety is being deeply contaminated by the QE hyper monetary inflation programs that have damaged the USD integrity for six years running. The Gold Trade Note will serve as the all-in-one contract, the efficient omnibus contract which will gain global acceptance.
EXAMINE THE COMPONENTS
It is important to step back, to observe the key pieces to the puzzle, to notice the decayed elements, to notice the new fortified elements, and to make conclusions on the direction of the path, which ultimately will lead to the Gold Trade Note. It will be used initially to make payments for massive oil shipments. Later it will be used to make payments for massive container vessels, and for what are called dry shipments (like cement, grain, lumber, ore). Finally it will be used to make payments for construction projects and service contracts. The Gold Trade Note is en route to supplant and to replace the USTreasury Bill within the global payment system. The USDollar has been incredibly abused, with monetary printing used to cover USGovt deficits, to redeem toxic bonds held by Wall Street banks, to justify the US trade deficit, and to finance endless wars. Given the USDollar role as global currency reserve, the USDollar abuse cannot stand much longer. Its days as King Dollar are very limited. Examine the components in key events.
PETRO-DOLLAR SYSTEM HAS BEGUN TO BREAK DOWN. The correlation between the Saudi USTreasury holdings and the crude oil price has broken down. The inverse correlation between the USDollar currency index and the crude oil price has broken down. This chart, like the others to follow, is from Grant Williams and his fine work.
USTREASURY BONDS HAVE BEGUN TO LOSE THEIR STORE OF VALUE. Since the 1970 decade, the total foreign holdings of USTreasurys went from near nothing to over $6 trillion in the span of over 40 years. Nations needed to hold big quantities of USTBonds and USTBills with which to purchase crude oil. In the last three years, foreign FOREX reserves have been gradually in decline. The reasons are many, such as falling oil price, falling commodity prices, global recession, and disgust for USGovt fiscal policy and for USFed monetary policy.
A GRAND BACKFIRE OCCURRED IN RESPONSE TO THE IRAN SANCTIONS, WITH BARTER TRADE. Starting in May 2012, Iran began to sell a portion of its energy products to China for RMB currency, bypassing the Petro-Dollar entirely. In turn Iran used the RMB to purchase Chinese goods and services. The trade was worth around $25 billion per year. China then decided on a policy shift, no longer to accumulate FOREX reserves, with the finger of toxic blame pointed at the USGovt. The great reduction of USTBonds had commenced. Iran and China had begun their barter trade.
THE IRAN BACKFIRE AMPLIFIED WITH THE INDIAN OIL FOR GOLD SALE. Regional neighbor India agreed to purchase Iranian crude oil in 2014. The deal was clever, and sidestepped the blockheaded Obama Admin sanctions. India bought the oil, but paid with gold bullion acquired from Turkey. The gold was delivered then to the large banks in Iran, which were not subject to restrictions. Only the Iran central bank was under restrictions. Crude oil was sold on a large scale basis, with no USDollars in the transactions. With barter and the oil for gold sales, the elements were coming into shape for the Gold Trade Note. The nefarious bullies in Washington had been outwitted while giving the death sentence to the Petro-Dollar, and a death warrant to the USDollar.
THE RUSSIAN OIL TRADE WITH CHINA WAS THE RESULT OF THE UKRAINE WAR, WHILE SHANGHAI SET UP SHOP WITH THE GOLD EXCHANGE. Consider it another gigantic backlash from yet another illicit war. The USGovt and Israel kicked off the fascist coup in Kiev Ukraine, but the joke was on the Petro-Dollar, again a victim of severe blows to the groin. The Russians began both massive oil & gas sales with China, paid in RMB, but also energy pipeline construction to connect the two Asian nations. The construction would be paid in USTreasurys held by China. The great dumping had begun in earnest, called Indirect Exchange since third party cash was used.
NEXT CAME THE INTRODUCTION OF THE SHANGHAI GOLD EXCHANGE. Despite its limited price impact, the global gold flow chart has undergone radical change. Already, places like Tokyo, Seoul, and Dubai are opening physical gold markets. They strive to link their nascent markets for bullion to the Shanghai exchange which has rapidly become the largest physical delivery market in the world.