A number of sources indicate India and China, who take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd, are preparing to pay gold for oil. Both are superpowers in terms of gold assets.
By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.
The vast sums involved in these transactions are expected, furthermore, to boost the price of gold and depress the value of the dollar on world markets.
Iran's second largest customer after China, India purchases around $12 billion a year's worth of Iranian crude, or about 12 percent of its consumption.
An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions. The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. The switch to gold was kept dark.
India thus joins China in opting out of the US-led European sanctions against Iran's international oil and financial business.
The EU decision of Monday banned the signing of new oil contracts with Iran at once, while phasing out existing transactions by July 1, 2012, when the European embargo, like the measure enforced by the United States, becomes total.
The European foreign ministers also approved a freeze on the assets of the Central Bank of Iran which handles all the country's oil transactions.
However, the damage those sanctions cause the Iranian economy will be substantially cushioned by the oil deals to be channeled through Turkish and Indian state banks. China for its part has declared its opposition to sanctions against Iran.
These rumours, compounded by a simultaneous decline in the dollar’s value, has seen gold gallop by more than $165 an ounce in the past 30 days, and is currently hovering around $1,730 per ounce.
There is also the prospect of further quantitative easing in the US, with the Federal Reserve ready with additional cash-injections as and when required. Further stimulus by the Fed would be seen as a negative on US economic health and encourage inflation, pushing wary investors back to the safe haven refuge of gold
That said, gold has seen its safe haven status diminish substantially in the recent past, declining 20 per cent from highs above $1,921 per ounce to lows of $1,520 per ounce in a little over three months last year. While these rumours are currently pushing prices back up, any resolution of the Greek debt crisis and the Iranian situation could as well see spot gold fall back to $1,500-levels.
