The End Of The Petrodollar Standard Is Here. The Gold Standard Is Back.

This article is longer than those we normally include in our weekly news summary, but it’s well worth your time and effort to review.

The article takes a deep dive into the recent announcement that Russia is pegging the value of its currency, the ruble (RUB), to gold. It considers both the implications for gold itself and the possibility of a new gold standard as well as linkages between RUB, gold, and the price of oil. Russia did peg the ruble (RUB) to gold at a rate of RUB5,000 = I gram of gold.

However, this peg had more to do with supporting RUB than affecting the price of gold. Prior to the invasion of Ukraine and the imposition of sanctions, RUB was trading about 80-to-1 against the dollar (USD). There are 31.1035 grams per troy ounce of gold.

Using Russia’s peg, that comes to RUB155,517.50 per ounce. Taking the market price of gold at the time (about $1,930 per ounce), that comes to a USD/RUB exchange rate of 80.57 rubles per dollar, almost exactly where it was before the invasion, and exactly where the Central Bank of Russia wants the exchange rate to be.

If the dollar price of gold goes up and the RUB peg to gold (by weight) is maintained, then the RUB will appreciate relative to the dollar and vice versa. If RUB declines relative to the dollar while the price of gold (in dollars) was relatively unchanged, then an arbitrage opportunity would arise where an investor could use dollars to buy rubles, then use the rubles to buy gold, then sell the gold for dollars realizing a substantial profit (measured in dollars) in the process.

However, that arbitrage opportunity will not be realizable due to exchange controls and Russian limits on who can actually buy gold with rubles. This illustrates the fact that this development is more about supporting the USD/RUB exchange than affecting the price of gold.

Still, this development is a straw in the wind and has significant implications for a future gold standard or a money standard linked to a basket of commodities, including gold and oil.

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