Credit Suisse Analyst Sees $3,600 Gold on Potential Russia Oil for Gold Move

Published on: Dec 12, 2022
Author: Philip Tai

It has been an interesting time to be a gold bug over the past 2 years.  We have been hit with macro level “once-in-a-lifetime” events such as the COVID pandemic that helped raise gold prices from its multi year lull to over 2200 in August of 2020.  The Russo-Ukrainian War also pushed the price of gold to over $2,000 in March 2022, but since then, gold prices have dropped to $1,800 in December.

Credit Suisse’s Zoltan Pozsar is now painting a scenario where the war in Ukraine can push gold prices to over $3,600 an ounce if Russia responds to G7’s oil price cap by accepting gold for crude.

While this prediction may sound insane to most gold watchers, it is not that far-fetched given this year’s already turbulent macroeconomic environment, Pozsar said in a note titled ‘Oil, Gold, and LCLo(SP)R.’ “Crazy? Yes. Improbable? No. This was a year of the unthinkable macro scenarios and the return of statecraft as the dominant force driving monetary & fiscal decisions,” Pozsar wrote Monday.

Pozsar paints a scenario where Russia’s President Vladimir Putin responds to the recently introduced $60-a-barrel oil price cap by asking for a gram of gold for two barrels of crude.

What would happen here is the U.S. pegs Russian export at this price, and Russia, in return, pegs it at a gram of gold. And this would come at a time when the U.S. is working to refill its strategic reserves with cheap petroleum.

According to Pozsar, what would result would be “the U.S. dollar effectively gets ‘revalued’ versus Russian oil… But if the West is looking for a bargain, Russia can give one the West can’t refuse: ‘a gram for more.’ If Russia countered the price peg of $60 with offering two barrels of oil at the peg for a gram of gold, gold prices double.”

This is how we get to $3,600 an ounce of gold from current levels of $1,794 an ounce.

“Russia won’t produce more oil, but would ensure that there is enough demand that production doesn’t get shut. And it would also ensure that more oil goes to Europe than to the U.S. through India. And most importantly, gold going from $1,800 to close to $3,600 would increase the value of Russia’s gold reserves and its gold output at home and in a range of countries in Africa,” Pozsar described.

Not all Sunshine and Rainbows with Gold Price Growth

“Banks active in the paper gold market would face a liquidity shortfall, as all banks active in commodities tend to be long OTC derivative receivables hedged with futures (an asymmetric liquidity position),” Pozsar wrote. “That’s a risk we don’t think enough about and a risk that could complicate the coming year-end turn, as a sharp move in gold prices could force an unexpected mobilization of reserves (from the o/n RRP facility to banks) and expansions in balance sheets (SLR) and risk-weighted assets. That’s the last thing we need around year-end.”

Emergent Metals Announces Drill Results in Midst of Potential Gold Price Rise

Emergent Announces Phase 1 Drilling Results at its Casa South Property, QC

On December 7th, Emergent Metals Corp. (TSXV:EMR, OTC:EGMCF, FRA:EML, BSE:EML) announced by press release its phase 1 drill results for 10 diamond core drill holes totaling 2,963 meters at its Casa South Property, Abitibi Region, Quebec.  Emergent has also completed modeling and interpretation of 197 historic reverse circulation drill holes done to sample glacial till in the 1980’s.  This analysis has identified 14 additional drill targets for future exploration.

David Watkinson, President and CEO of Emergent stated, “Casa South is a large property with multiple exploration targets, including both gold and base metals.  The Company plans to conduct additional drilling programs to explore the potential of the Property and the Phase 1 drilling was the first of several phases we plan to conduct over the next several years as part of our exploration strategy for the Property.  The presence of anomalous gold mineralization in the Kama Trend is encouraging.”

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