Beijing’s plan to avoid newly implented U.S. financial sanctions may be why this is the best time in the world to buy gold.
According to Forbes, Beijing will pay for Iranian oil with their gold. In the past few months, we’ve repeatedly reported on China’s unquenchable thirst for gold which has helped pushed gold bullion price to record levels over the past 12 months.
Imagine what further Chinese demand could do to present day gold prices…
To give you a little bit of the political background regarding this issue, let’s rewind back to the very end of 2011. President Obama then signed the National Defense Authorization Act for this 2012 fiscal year. By signing the NDAA, Obama initiated financial sanctions on foreign financial institutions involved with Iranian financial institutions, hoping to lessen Iran’s petroleum sales profits.
Although the provision will not be officially active until June 28, financial institutions across the globe have been strategically planning ways to get around the sanctions that would deny them the ability to mingle with certain aspects of Iranian’s economy and America’s at the same time.
Beijing especially has sought some sort of exception:
The NDAA gives the president the power to waive the sanctions depending on the availability and price of supplies from non-Iranian sources. He can also exempt financial institutions from countries that have significantly cut back purchases of Iranian petroleum. Last month, the State Department announced waivers for Japan and ten European countries. China, which has received American waivers in the past under other Iran legislation, is now Tehran’s largest oil customer and investor as well as its largest trading partner. Given the new mood in Washington, Beijing cannot count on getting more exceptions in the future.
The Wall Street Journal explained the whole ordeal has being a form of manipulation. Essentially, the sanctions provide a way for the U.S. to coerce other countries not to buy Iranian oil. Of course they have the choice to continue buying petroleum from Iran, however – according to the sanctions – that would mean that country would not have the opportunity to engage in any dealings with the U.S. economy.
Hence, China especially finds itself in quite a predicament. As China and America’s relationship has become increasingly co-dependent, Chinese officials also note that their “geopolitical interests align” more closely with those of Tehran. Therefore, it is difficult for China to make a decision that won’t jeopardize either one of those relationships.
But, the barter system appears to be the only outlet China has to avoid mayhem with the two competing countries. China has been trading produce and other commonly used household goods in exchange for gold, but Iran needs cash too – not just food, clothes, and toiletries at a time when we’re cutting them off from the global financial system.
According to Forbes, “China imported $21.7 billion in Iranian oil and exported $14.8 billion in goods and services. As the NDAA goes into effect, look for Beijing to ship gold to Iran to make up the difference.”
An unnamed senior administration official to the Wall Street Journal alerted readers that other sanctions may be put in place that our multilateral partners around the world may put in place which would have an increasingly bullish affect on gold price as well.
Food and household goods are certainly desired in Iran, but gold is something the entire global community seems to want more of these days.
Brittany Stepniak – Wealthwire – April 24th, 2012