The Michael Fuljenz Metals Market Report

January 2012, Week 5 Edition

Will Iran Start Trading OIL for GOLD?

The second engine behind gold's recent rise is the prospect of trading gold-for-oil in the Persian Gulf.

The Western World has been trying to punish Iran for developing nuclear technology. The latest plan is a global trade embargo against Iranian oil, enforced by the presence of the U.S. Navy in the strategic Straits of Hormuz and nearby waterways. U.S. sanctions currently block the transfer of dollars and major foreign currencies into Iran, in exchange for oil. These sanctions ban any bank transferring oil payments to Iran.

However, Iran will not sit by and meekly accept the loss of their major source of revenue. Israeli sources reported that India has agreed to pay for its imported Iranian oil with Gold. Gold is not a bank currency transfer but a commodity, a barter exchange. U.S. sanctions against Iran block the transfer of dollars to Iran, but not gold. The U.S. sanctions ban any bank transferring funds to Iran. But the gold "loophole" protects India from U.S. sanctions against the countries which trade dollars or other paper money for oil.

India's current plan is to transfer its gold through the state-owned UCO Bank via Turkey's Halk Bankasi bank, since Turkey is another country that refuses to join in on the sanctions against buying Iranian oil.

For years, we've heard the rumor that Iran will demand gold instead of U.S. dollars for oil payment. That warning never materialized into fact until the U.S. and Europe pushed Iran's back to the wall and blocked all paper money payments for Iranian oil. Now that India and Iran have begun the gold-for-oil exchange, what if this plan works well for them? What if more countries demanded payment in gold in future years?

The global market for oil is huge - dwarfing the value of all above-ground gold. Any huge volume of added demand for a finite amount of gold could push the gold price well above the $2,000 "barrier."

First Time in History

Last Wednesday, for the first time in its 98-year history, the Federal Reserve issued interest rate forecasts and inflation "target" rates. The Fed now says that the acceptable level of currency depreciation is 2% per year. The gold market reacted immediately, with a $77 increase from noon Wednesday to noon Thursday.

In the same press conference, Fed Chairman Ben Bernanke said that the current "zero interest-rate policy" (ZIRP) will continue well into 2014, if not beyond, and that he plans to impose another round of "QE" (quantitative easing), or QE-3. This is "helicopter" Ben in action - printing money to solve all our ills.

Years ago, Mr. Bernanke got his nickname "helicopter Ben" by proposing a plan for the debasement of the dollar through over-printing money and dropping it from a helicopter. As he explained at the time:

Free Coin Expert Consultation

If you have any concerns about your rare coin or precious metals purchases or you may be considering contacting a coin attorney, we suggest it may be in your best interest to talk for free with Award-Winning Expert Mike Fuljenz before contacting anyone else.