In a year of "unthinkable macro eventualities," Credit Suisse's Zoltan Pozsar believes gold might double to $3,600 an ounce if Russia responds to the G7's oil price cap by accepting gold in exchange for petroleum.<br /><br />Pozsar stated in a client note that a year-end money-market liquidity crunch is unlikely unless Russia decides to take gold in exchange for oil in light of sanctions.<br /><br />While this conclusion may seem out of this world, considering some of this year's geopolitical and macroeconomic surprises, Pozsar said in a note headlined 'Oil, Gold, and LCLo(SP)R.' "Crazy?<br /><br />Yes.<br /><br />Improbable?<br /><br />No. This was a year of inconceivable macro eventualities and the return of statecraft as the driving factor behind monetary and fiscal decisions "Monday, Pozsar said.<br /><br />In this scenario, Russia's President Vladimir Putin responds to the recently implemented $60-per-barrel oil price cap by requesting a gramme of gold in exchange for two barrels of crude.<br /><br />According to Pozsar, the cap of $60 per barrel for Russian oil at current market rates equals the price of one gramme of gold.<br /><br />In essence, the US pegs Russian export at this price, and Russia, in turn, pegs it at a gramme of gold.<br /><br />This would occur at a time when the United States is seeking to replenish its strategic stockpiles with cheap petroleum.<br /><br />According to Pozsar, in this case, "the US dollar basically gets'revalued' vs Russian oil."<br /><br />"However, if the West is searching for a deal, Russia can offer one that the West cannot refuse: 'a gramme for more.' If Russia responded to the $60 price peg by providing two barrels of oil at the peg for a gramme of gold, gold prices would quadruple "Pozsar explained.<br /><br />This is how gold may rise from $1,794 per ounce to $3,600 per ounce.<br /><br />"Russia will not produce additional oil, but will ensure that there is enough demand to keep production from being shut down.<br /><br />It would also ensure that more oil is routed to Europe rather than the United States via India.<br /><br />Most importantly, a rise in gold prices from $1,800 to close to $3,600 would raise the value of Russia's gold holdings and output at home as well as in a number of African countries "Pozsar explained.<br /><br />However, doubling gold would be problematic for banks active in futures markets because most have anticipated that governments will not return to paying for things with commodities.<br /><br />"All banks operating in commodities tend to be long OTC derivative receivables hedged with futures (an asymmetric liquidity position)," Pozsar noted.<br /><br />"That's a risk we don't think about enough, and it might complicate the coming year-end turn, since a big rise in gold prices could compel an unexpected mobilisation of reserves (from the o/n RRP facility to banks) and balance-sheet expansions (SLR and risk-weighted assets).<br /><br />That's the last thing we need near the end of the year."<br /><br />The price cap on Russian seaborne oil went into force on Monday.<br /><br />The G7, the European Union, and Australia are enforcing it.<br /><br />
