For the first time since the U.S. abandoned the gold standard, physical gold is being reintroduced to the global monetary system in a major way. This massive shift away from the petrodollar could be bad news for the U.S. – but it could be great news for gold owners. Here’s why.
The comments above and below are an edited and abridged synopsis by bmgbullion.com of the original article by Peter Reagan.
For decades, the world’s largest oil importers have paid for oil using the petrodollar, which supports the dollar’s value and fuels U.S. government deficit spending (primarily because the petrodollar is backed by Treasuries). Now, however, China is looking to upset the current petrodollar system by introducing gold-backed ‘petroyuan’ oil futures contracts.
Given the choice between trading in something backed by Treasuries (which can be created at will from nothing by the US government) or physical gold, what do you think exporters will prefer?…[From the original article:] “With major oil exporters finally having a viable way to circumvent the petrodollar system, the U.S. economy could soon encounter severely troubled waters.
- First of all, the dollar’s value depends massively on its use as an oil trade vehicle. When that goes away, we will likely see a strong and steady decline in the dollar’s value.
- Secondly, the U.S. government relies heavily on the geopolitical bargaining power and benefits provided by the petrodollar system. Since the petrodollar is backed by Treasuries, the federal government depends heavily on it to fund deficit spending. Without the monetary support of the petrodollar, the U.S. government could soon find itself shouldering an even bigger debt burden than it already is (not to mention lawmakers’ current budgetary struggles and the approaching need for another debt ceiling increase).
But there are still very good news…
While the dollar and U.S. government brace for the crushing impact of China’s new game-changing oil trade instrument, there’s one asset that could benefit handsomely from this situation, and that’s physical gold…
As more and more nations pile into this new gold-backed oil trade instrument, global demand for physical gold will surge, giving gold prices a tremendous upward thrust. All this is coming at a time when gold already has several bullish price drivers poised to drive it higher so China’s new gold-backed oil futures contracts are just icing on the cake.”