Gold for Oil - Are China and Russia next?

China is ready to jump into the same game. They have a banking system and it connects to the Russian banking and Russia has a fair amount of gold. So there could be a whole network among Central Asian countries, China, Russia, India, Iran and others, who say the time has come leave the dollar system completely. - Jim Rickards, 27 January 2012






Did you catch last week's story?

Not the one about the Fed. The one about India paying Iran gold for oil. And China possibly following suit, after agreeing a landmark trading arrangement with the UAE with the USD expressly not included.

The beginning of the end for the USD as the world's reserve currency?

The jigsaw pieces are falling into place. International indicators have been telling the markets for some time the international greenback is in terminal decline. If it doesn't explode from within as a result of the Fed's easy money policies, it could just as easily explode from without, at any time, through the actions of significant geopolitical players.

If and when an event comes, there will be widespread unpreparedness. The effect will be the currency equivalent of Pearl Harbor. To the prepared, however, the signs have been there for some time and the 'event', whatever that may be, will merely be the snowflake that caused the avalanche.

So what would really turn the markets?

The most likely possibility is some form of bilateral trade agreement between China and Russia, a RMB-Ruble alliance. Were such an announcement to be made, these two geopolitical giants would send the dollar into a tailspin. In turn, you would see the crashing of the US dollar-denominated stock exchanges, a domestic currency collapse on Wall Street followed swiftly by Main Street.

And is this likely to happen soon?

It's certainly possible.

China, as the holder of over $1 trillion dollars of US Treasuries, have obviously been concerned about the decline of the USD for some time and the Fed's announcement last Wednesday is unlikely to have quelled their fears. And Russia has its own regional interests to pursue.

Jim Rickards has foreseen such a possible outcome. Michael Lombardi predicts such an event happening on 13 April 2012. I couldn't possibly comment, save to say that such an event is not behind the realms of possibility and could happen sometime between 2012-2013.

Of course, I'm not saying that this will happen. Merely that it is one possibility among many that could pierce the USD's role as the world's reserve currency and usher in the new currency order (probably backed by gold).

Black swan events, foreign and domestic, will be the subject of my next post.

Over and out for now gold fans.