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Throwing BRICS Into the Fire of Precious Metal Investment Demand



-- Posted Sunday, 20 May 2012 | | Disqus

Despite ongoing pressure from the United States for China to join its sanctions against Iran due to concerns over the Islamic country’s nuclear program, an Iranian diplomat recently revealed that new energy trades between Iran and China will be settled in China’s official currency the yuan.

 

China has recently been promoting the yuan as an international currency to compete with the U.S. Dollar. Estimates indicate that this latest move by China will effectively remove 2.4 million barrels of oil produced by Iran that would normally be traded in petrodollars, thereby removing considerable oil based trade support from the U.S. Dollar.

 

Gulf Tensions Grow as Key BRICs Countries Continue Trading With Iran

 

Furthermore, this move by China will probably increase tension in the Persian Gulf because the United States is desperate to maintain the use of the U.S. Dollar in petroleum transactions. The United States has previously participated in military action against countries who have switched away from making oil trades using the U.S. Dollar.

 

Although the shift away from using the U.S. Dollar in oil trades is currently being spearheaded by Iran, the change is reportedly being backed by India, China, and Russia. These key BRIC countries are already substantial consumers of Iranian oil, and they do not seem at all inclined to let U.S. sanctions cut off their strategic petroleum supply from Iran.

 

Undermining the U.S. Dollar’s status as a key petrocurrency could suffice to make Washington anxious enough to seek out an excuse to topple the regime in Iran.

 

Iran’s Nuclear Wild Card Looms

 

To exactly what extent Iran has made progress towards operating a dangerous nuclear weapons program is basically anyone's guess. Nevertheless, if keeping the world safe from rogue states with nuclear capabilities were the sole motive behind the sanctions against Iran, then why have North Korea and Pakistan been given tacit approval for their nuclear programs?

 

Another consideration worth bearing in mind is that Russia, India, and China are all major precious metals producers. If petrodollars go out of vogue and trading in other currencies gets too complicated, they will probably tap into their substantial gold storehouses to keep the crude oil flowing their way.

 

Precious metals like gold and silver have traditionally served as fallback currencies. Basically, when paper currency relationships start to change and valuations become hard to predict, these metals can be relied upon to act as a widely accepted currency. 

 

Also, when gold gets expensive, this tends to put more pressure on all metals. With respect to silver, the spillover demand for valuable metals could be enough to trigger a sharp short covering rally or an industrial panic for the physical metal.

 

***

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com


-- Posted Sunday, 20 May 2012 | Digg This Article | Source: GoldSeek.com

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