Skip to comments.India to pay gold [instead of dollars] for Iranian oil. Oil and gold markets stunned
Posted on 01/24/2012 10:33:24 AM PST by Lorianne
India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, debkafile's intelligence and Iranian sources report exclusively. Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd. Both are superpowers in terms of gold assets.
By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.
Yea lets send more jobs and US money to India
Don’t forget weapons. Watch, Pakistan will probably say they’ll stay on the USD...for a price.
Won’t this lower the price of Gold? We have two countries that have been hoarding Gold, and now they’d rather get rid of their Gold than pay in cash.
When the market sees the emergence of an overt Gold bourse - of Gold regaining its primordial status as money on the world stage - Gold will be repriced. And so will the dollar.
Debka strikes again!
India bought a lot of gold over the last two years and saw the price go way up. So they have a surplus of gold while their currency is iffy.
Iran needs the gold as their currency could go lights out at any time by us and the coming embargo/conflict.
This is nothing but two troubled economies looking for a portable and relatively stable money instrument.
BTW, India is flat refusing to go along with any sanctions or embargoes against Iran.
Gold and Silver are not “cash”. They are metals — a commodity that has traditionally been desirable regardless of it’s true value or usefulness, and therefore something that has been used in barter exchanges.
Cash is an artificial construct to track barter exchanges without having to directly exchange items of value. Cash itself has no “value”, except as it is acceptable as a ledger to keep track of barter exchanges. Cash requires that we set a value to each thing we want to barter, and that this value be somewhat generally accepted — but rather than go through that hassle, we usually instead set a “value” on the cash instead. So if you don’t think an item is worth what someone else does, you can offer less cash for it, and each exchange can value items accordingly.
This is problematic if you don’t have a system in place already obviously, because someone isn’t going to take your cash if they don’t have some reasonable expectation that it has the same “value”, and will have a similar value when used later. We talk about cash being valued based on how much work it takes to earn it — that’s probably the best measure.
Gold could be “cash”, and was used as cash because it couldn’t be easily created, and therefore there was less danger that someone could cheat and create cash rather than getting it by exchanging a good or service for it.
But gold was a poor cash substitute, because there really is no rational basis for measuring the “value” of an economy based solely on how much gold you can pull out of the ground. Gold couldn’t keep up with the economic value, and so it’s price (value) fluctuated wildly, making it a poor choice to measure the exchange of goods.
Cash of course can be created by the government. On the other hand, imagine what would happen if tomorrow someone stumbled across a gold mine of epic proportions, such as had never been found before, and effectively increased the global gold supply by 10%, within a single country. Would the world accept the instant improvement in that one country’s “value”, or the corresponding destruction of 10% of the current value they held in gold?
I hope they don’t use a lot of that gold to pay for oil. I would hate to see it become radio-active when Israel nukes Iran.
They’ll have to shut the 24/7 printing press down too.
Those who pay in gold should ask for a discount because they are paying in gold. Payments in US$ are subject to devaluation of the $$ if held in accounts.
In terms of oil and gold, the US$ is somewhat stable at present but is likely to continue devalue.
It would be foolish to expect India to lose control over its serious inflation problem by cutting down its fuel supply from Iran, especially in the light of the fact that the US not only aids, but also militarily equips and supplies the Pakistani military with weaponry meant for, and used in the past, to kill Indians.
The Taliban does not have a Flying Carpet Airforce to justify American sales (oops, free supply) of AWACS platforms and fighter planes to the Pakistanis.
DEBKA is not creditable and India will not be sending Iran 250 tons of gold a year. Of that you can be sure.
Fiat currency has most of the attributes of money, but it does not act as a store of value. After a few years a dollar bill has only a fraction of its original buying power. However an oz of Gold from (e.g.) the time of the Norman Conquest retains its buying power.
Something that has the attributes of money is valuable because it has those attributes. Would-be barterers can use money to overcome the otherwise insuperable problem of discovering a Coincidence_of_wants .
Trade requires money. Let's examine this vital function of money with respect to the coincidence of wants:
My Chicken farm example:
You run a chicken farm, and you need to buy a great many things to keep your farm and family going.
In a given month you need - for instance - to buy chicken feed, to hire someone to repair your generator, to buy a nailgun to allow you to mend chicken barn #9, to hire a midwife to help give birth to your widowed daughter’s baby, to buy milk and bacon - and so on.
Some of these resources will be buyable with chickens or eggs. And some of them will not - there's no coincidence of wants if the midwife or the nailgun owner don't want chicken meat or eggs.
But all or most of these resources will be buyable with money - with Gold or Silver. Because offering money in a transaction vastly improves the chance of a coincidence of wants
My Chicken farm example - continued:
You’ve had a successful month at the farm, and you now have loads of chicken meat and/or eggs to sell.
100 people line up to buy what you’ve got.
* 50 of them have horribly devalued fiat money, food-stamps and a bad attitude
* 40 of them have plans for barter - some of which are better than others. One is willing to work on your farm for food: another is willing to sell you their body, another has a stack of AA duracell batteries, another has some miniature bottles of scotch - and so on, with dozens of variations. You have to gauge each transaction on its own merits - an exhausting process - and half of the barter offers are simply going to be unworkable.
* 10 of them have Gold and/or Silver.
Which customers will you prefer selling your produce to? They all want what you've got - but do you want what they've got? Again: real money vastly increases the chance of a coincidence of wants.
Only Gold and Silver fulfill all of the prerequisites of money. This gives them inherent value - useful (for instance) in a survival situation.
Of course Fiat currency can also be used to run a chicken farm - but only up to the moment when inflation reaches 50% a month.
Hope this was helpful.
And it begins...
Imagine what would happen if a Government doubled their M1 currency supply in just a couple of years. Actually, I don't think we need to imagine very hard. We are going to see the effects first hand, up close and personal :0(
The mean onset time for huge increases in currency supply to show up as horrendous price increases/ currency devaluation is about seven years. That means the years 2013 to 2015 are going to suck big time - except for those holding true money (and of course: guns, food, medicine etc)
According to a new and yet unconfirmed report, India bought oil from Iran using gold. India certainly has the gold resources to fund the oil, while Iran is under pressure by the West, due the continuation of its nuclear program.
There were reports that officials have been floating this idea for some time, and now, as the EU finally decided upon an oil embargo on Iran, more details became available, yet still pend confirmation.
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Oil is priced in US dollars, and bypassing the greenback posed challenges for both parties. Two banks are reportedly involved in this deal: Indias state owned UCO Bank and Turkeys state owned Halkbank.
Both banks dont have any business with the US and therefore are less vulnerable to sanctions. According to the report, an Indian delegation has spent time in Tehran and finalized the details of the transactions.
The annual capacity of trade between these two countries is 12 billion dollars. With gold trading at around $1668, that is around 7.2 million ounces of gold.
The step joins Russia and Irans announcement to begin trading in their own domestic currencies rather than use the US dollar a reserve currency.
These details about the gold for oil deal come on the day that EU officials announce an oil embargo on Iran starting on July 1st. Tensions between Iran and the West are mounting and oil is already on the up.
The time it took the EU to reach the decision, and the late implementation date make it very easy for Iran to enlarge exports to oil hungry and fast growing Asian countries.
The use of gold for buying the No. 1 commodity, will likely have positive implications for the precious metal, if this report is confirmed and especially if the use of gold widens to China the worlds No. 2 economy.
The argument that gold is money is circular. Gold has value because people value it. It doesn’t have “intrinsic value”. It is not particularly useful. You can’t eat it. It won’t shelter you. It’s lousy for clothing, or blankets. It’s not a useful metal for basics like knives. It’s too expensive to be used for tools, even if it wasn’t too soft.
It is shiny. Long ago, before we knew how, it was a pretty metal that could easily be formed into, or more generally around, other things to make them look shiny. Shiny was equated in that culture to “valuable”, so Gold was valuable. Silver also, but less so.
Why did they make gold coins? No, not “why did they make coins out of gold” — why did they make gold into coins? If Gold was intrinsically valuable, why did they have to print a face on them, put valuations on it, make it “official”? Because it only seemed to have intrinsic value. It became truly valuable because the state backed it. You knew you could take a gold coin as trade, because you knew the next guy had to take the gold coin in trade. The state required it.
Why gold? Why not titanium? Why not palladium? Why not lead, copper, brass? Well, some of those are so “common” that the intrinsic metal value would be low, even if people wanted it. Others are simply because they were too rare to be useful. Still others simply weren’t shiny.
OK. So everybody has some “built-in” historic concept that gold is worth something, because gold has always been worth something, and we just accept it. But there is no rational basis for that belief. If we didn’t hoard gold in some intrenched notion of value, our gold-plated wires would cost a lot less.
In the end, money of any kind only has value so long as there is a society that enforces that value, usually through the force of the state. Gold has somehow managed to transcend individual countries, which sure makes it useful, so long as that irrational belief in value continues.
You can of course argue that if irrationality is a universal and unwavering condition, the value of Gold is as real as if there WAS a rational basis. That’s like arguing that you’d be stupid to trade the stock market based on what you know to be true — you should trade based on what the market participants believe is true, even if they are wrong. Because the stock market goes up or down NOT because it represents more or less value, but because people THINK there is more or less value. Same for gold.
But being rational, I have trouble with the idea that since every time I cross the street without looking, I make it to the other side, I can ALWAYS cross the street without looking.
Or to put it in a different analogy — if years were minutes, the value of Gold could be represented by the value of beanie babies. Because for a period of time, people bought them because they had value, and they had value because people bought them, the company worked hard to ensure that the supply seemed limited, and that people could see that they would always have value. Then one day, people woke up and said “why am I putting cheap stuffed animals in hermetically-sealed plastic containers and stuffing them on my mantle as if they are works of art?” And suddently, you could buy used beanies at yard sales for pennies.
Would I want cash if I was stranded on a desert island? No — what good would it be. But would I want to pack gold and take it with me? no, beause it would be less valuable — at least I might be able to make clothing out of dollar bills, make some arrowheads with sharpened pennies, build a battery with the different-metal coins, or use dollar bills to wipe my butt.
One point in your favor — in this transaction, people are claiming that India will buy oil with their gold. But isn’t Iran really buying gold with their oil? Although we can tell which is which by the fact that Oil has intrinsic value.