It's been a while since we have completely moved away from the Gold Standards. Back in the days when paper money was invented, nobody would accept them as payment unless you could exchange them later for some gold. Without this guarantee, paper money was just useless papers. But in the 1970s in the USA, President Nixon realised they printed way too many paper bills without enough gold to back them up. So he stopped the convertibility of the US dollar to gold.
Today, we have countries whose currency crashed in value, announcing a fixed price for buying gold with their currency.
- Russia: 5000 RUB = 1g gold
Such a fixed rate between the currency and gold gives the currency much more credibility. Here is why:
- For rouble to be credible, you have to be able to exchange that for some gold guaranteed. But Russian government does not have enough gold reserves to back that up yet.
- Russia just announced that any "unfriendly" countries sanctioned Russia must pay with rouble or gold for its oil.
- If the buyer country chooses to pay with rouble, demand for rouble will increase. When the price of roubles gets too high, it will make sense to buy roubles from the Russian government with some gold at a cheaper fixed rate. Russia will gain lots of gold in the end.
- If the buyer country chooses to pay with gold, Russia gets lots of gold again.
- Once Russia has enough gold, they can now turn around and announce a fixed rate for buying roubles with gold. Suddenly, anybody who owns roubles can easily exchange them for gold at a guaranteed rate, thus making the currency the Gold Standard.
Russia has found a clever way to fight against the sanctions by using gold and trying its best to support its collapsing rouble's value.
Is this good news for gold? How do you invest in gold?
Time and time again, whenever currencies collapse in their values, gold is in high demand. Recently, we had some chain events that significantly impacted the currencies of underdeveloped countries. The COVID pandemic made the supply choke, and now the war has made it even worse. Gold might be a nice addition to your portfolio in the next couple of years. Search for some physical gold ETFs that are available in your public exchange.
Or you can also buy gold miners ETFs.