Iran Says “Gold Is Money”
By Louis James, Casey Research
In times of economic distress, the weaknesses of our monetary systems often come to the forefront, prompting a reevaluation of their effectiveness. As global financial difficulties intensify, many are revisiting the significance of gold – a historically steadfast medium of exchange – and considering its potential resurgence in today’s economy.
Recently, a rumor that India might begin purchasing oil from Iran using gold raised eyebrows across financial markets. This development is noteworthy for both its implications and scale, given that India accounts for about 22 percent of Iran’s oil exports, translating to approximately $12 billion annually. China’s share stands at 13 percent, while Japan follows with about ten percent. All three nations are grappling with the challenges posed by sanctions related to Iran’s nuclear ambitions.
Israeli news outlets suggested that a potential workaround for trade between India and Iran could involve gold transactions. The lack of official comments from Indian government representatives only fueled speculation.
At first glance, such an arrangement appeared to provide a stable transaction medium; the Iranian rial lacks global recognition, while gold offers a level of anonymity that could circumvent unwanted scrutiny. Ironically, it was this focus on gold payments that drew significant attention.
Ultimately, the gold transaction was revealed to be a misconception, with arrangements instead leaning towards a more conventional approach, incorporating Indian currency to finance these oil purchases. Iran plans to utilize the funds for importing other goods later on.
However, gold remains a considerable aspect of this scenario. The US-enforced sanctions have effectively isolated Iran from the international financial system. Reports indicate that Iran is struggling to secure even basic food supplies for its population of 74 million, leading to soaring prices. As the country approached its parliamentary elections on March 2, desperate measures were required to assure access to essentials. One such solution included trading gold for food supplies.
“Various grain transactions are being settled with gold bullion, and barter agreements are being proposed,” disclosed a European grain trader, wishing to remain anonymous. “Several major trading firms are engaging in these arrangements.”
Another trader emphasized: “Given the substantial volume of grain involved, barter and gold payments are the quickest alternatives.”
Gold trading, in contrast to transactions involving fiat currencies, operates on a “cashless” premise. While it may seem paradoxical, the truth is that gold has been humanity’s most enduring medium of exchange throughout history.
As long as sanctions inhibit Iran’s access to foreign currencies, gold will likely serve as an accessible means for settling international transactions. Ongoing reductions in oil imports to Japan, the world’s third-largest oil buyer, are expected to further erode Iran’s economy by depleting foreign currency inflows. The lack of available foreign currency may compel Iran to rely on its reserves or gold to fulfill international obligations. Oil could remain an alternative, albeit a less convenient one.
The current Iranian economic crisis, coupled with growing distrust in its currency, has led leaders to make increasingly unconventional proposals to their trading partners. Should the situation escalate to war, the implications for gold – particularly if part of Iran’s 29-million-ounce gold reserve were to transition into a medium of exchange – could be profound.
The potential reduction in available gold supply could fundamentally shift dynamics, not just for Iran, but encouraging other nations to similarly adopt gold for transactions. Such a move would likely boost gold prices significantly.
While this scenario is plausible, large-scale trading in gold is still a rarity in contemporary contexts. Tracking individual transactions remains challenging, largely due to the anonymity associated with gold dealings. This reality reinforces the enduring assertion that, when faced with insurmountable economic challenges, gold consistently prevails as the most reliable form of money.
This brings us to a timeless conclusion: gold stands as one of the most valuable assets to possess, regardless of the economic climate. It thrives amid inflationary pressures in prosperous times and serves practical purposes during downturns.
Gold is not merely a hedge; it is money.
Sincerely,
Louis James
for Economic Prism
[Editor’s Note: Louis James is Chief Metals and Mining Investment Strategist at Casey Research, where new strategies for benefiting from changing perspectives on gold are continually explored, including potential investments at discounted rates. Get started today.]