OVER the weekend of June 26, G7 leaders confirmed after the summit that they will ban the import of Gold from Russia.
US President Joe Biden spread the message through Twitter that the G7 leaders will announce the plan to impending ban that forms part of the sanction on Russia. The action comes as a counter strategy to slow down Russia in building fund for supporting the Ukraine crisis!
Market traders begin to ponder if such action will be positive to send gold prices higher? Or should the yellow metal fall since the large countries are not supporting the demand. Frankly, we have to look at the main commodity instruments that are currently used to counter the dollar strength; that is the gold and crude.
According to the latest update in 2022, Russia is the third largest Gold producers in the world ranking after China (annual production 330 metric tonne) and Australia (annual production 330 metric tonne). Russia produces 300 metric tonne annually and use the fund to grow its economic development.
In a 2021 report, Russia ranked second in terms of largest crude oil producer in the world that covers 13.1 per cent of global consumption. This is lined up after US as the largest Crude producer with 14.5 per cent supply of the world ratio, but above the rest of the other producing countries like Saudi Arab, Canada and Iraq.
In equation, the drastic fall in gold and crude prices will lift up the US dollar. This will kick-in a global inflation like the current situation and any further advancement in the dollar will trigger an economic bust in many developing countries due to the hyper-inflation.
Ironically, Japan is trapped in this situation now that the US dollar-Japan yen reaches 1.35 level has almost toppled many corporation profits while shrinking the domestic asset values. The last times we saw the exchange rate at 1.35 or higher was back in 1997, 2002, 2007 and 2015 when the Nikkei 225 Index crashed.
In simple comprehension, the G7 countries comprises US, UK, Canada, Germany, France, Italy and Japan. While the current global situation is leaning to a potential rate hike and a precedence of market tsunami in the asset bubble burst, it will be a safe haven soon to lock your wealth into the gold prices.
With the ongoing situation of Ukraine crisis, Russia is going to terminate their supply of energies to the European Union as Autumn falls. Hence, we foresee both yellow metal and energies are on their way up and higher in price escalation.
Therefore, the US dollar may be heading into a deep dive very soon after the Federal Reserve tightens the credit few more times into the year-end. That is the time when the US policymakers can start to cut rate again and print more monies to acquire offshore assets!
Lastly, the sanction on Russian gold export is only agreed by the US government and western allies. It could be a good time for China and India to pick up more gold reserves as a way to prevent their currency going into a crash when the next currency crisis comes. What’s your take now?
Dar Wong is a professional in security and futures industry for more than 30 years. He is a financial advisor based in Singapore. The opinions are solely at his own. He can be reached at [email protected].