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According to Jeff Christian and Gary Wagner, Russia did not return to a gold standard after the Ukraine war. And even if they had, a gold standard won't work.
Jeff Christian is the Managing Director of CPM Group, while Gary Wagner is the Editor of TheGoldForecast.com. They spoke with David Lin, Anchor and Producer at Kitco News.
Monetary Policy and Gold
Central banks around the world have been hiking interest rates. The Bank of Canada recently increased its key policy target to 1.5 percent. However, gold's price has remained relatively flat despite such monetary tightening.
Christian is unsurprised that the price has not moved much.
"You still have historically low interest rates," he said. "… And you also have negative interest rates on an inflation-adjusted basis… In addition to that, the increase in interest rates reflects concerns about inflation, which are positive for gold prices."
He remarked that increasing "volatility and uncertainty" are bullish for gold.
Wagner added that the Federal Reserve's asset sales would affect the demand for gold, "They're reducing their balance sheet. Both [higher interest rates and asset sales are] putting a strong effect on the demand side because it's more expensive to do business, more expensive for goods."
Russia's Gold Fix
In March of 2022, the head of Russia's parliament Pavel Zavalny said that countries can pay for Russian resources with gold. Yet the claim that this implies a return to a gold standard is a "Russian pipe dream," according to Christian. "… The reality is that nobody is actually paid in gold, or in fact in rubles, for the most part."
Christian opined that Russia's rhetoric around gold was a "face-saving" measure, and that the Russian energy company Gazprom was simply accepting payment in Euros and converting them to rubles.
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He added that the purported peg of 5,000 RUB to 1 gram of gold is "inaccurate." In the early days of the Ukraine conflict, said Christian, "there was a tremendous demand for gold from investors within Russia, and they were paying a premium to the world price. The 5,000 ruble per gram was a discount to the world price. So the refiners were saying, why would we sell to the central bank at a discount… when we can get a premium by selling to investors? So after about a week or so, the central bank of Russia actually pulled back and said, no, we will buy gold from domestic producers and refiners at a negotiated price relative to the international price... there was no peg."
A Gold Standard Comeback?
Wagner said that a return to a gold standard would be a "hard to an impossible task." He added, "Can we go back to some kind of modified gold standard? Possibly. But an actual gold standard? I don't believe that any country has the ability to back their currency dollar-for-dollar with gold. That would take way too much gold, when you look at the amount of currency in the system."
Christian added, "Let's say I go to a gold standard, and I make my currency convertible," said Christian. "What's happened in the past? Well in the 1960s, the U.S. lost 60-70 million ounces of gold at a fixed price. Prior to that, there were runs on the Bank of England when they had a gold standard."
To find out Christian and Wagner's views on whether a gold standard would tackle inflation, watch the above video.
By Kitco News
For Kitco News
