The Flying Frisby - money, markets and more Russia Has Been Using Gold to Pay for Iranian Drones
Russia has been buying military drones from Iran and it has been paying for them with gold.
This story seems to have gone largely unnoticed, but for those of us interested in the developing narrative that is de-dollarisation, this story has ramifications.
A quick word about gold and national currencies
We all know gold retains its role as store of value - otherwise central banks would no longer keep it, nor would ETFs be a thing. This is never going to change, by the way. Gold has always been and will always be used as a store and display of value.
But gold has never been much of a medium of exchange, except for high value transactions. This role usually fell to silver and other metals. Under the classical gold standards of the 19th century gold did find some use. The old pound coin - aka the sovereign - was 22 carat gold, for example, and national currencies were supposed to be interchangeable with gold. But any role gold had then has gone now. Except in extremis, such as in times of war, when gold finds function as a money of last resort, gold has not been used as currency, as a medium of exchange, for over a hundred years.
The remonetisation of gold, and the inevitable resulting official upwards revaluation, as governments tie their currencies to it once again to shore up their value, has been the dream of many a gold bug for many a year
In order to free themselves from the clutches of the US and its banking system, those countries that make up the Shanghai Cooperation Organisation (most of Asia) have long since wanted a settlement currency that is not the US dollar. The problem is what?
Which national currency can the likes of China, India, Russia, Iran and the various stans all agree on and trust in?
One possible solution is the internationally recognized money that is the shiny yellow stuff. Another is the rather less shiny, digital equivalent.
That gold has been used to settle a large debt between two SCO nations is, therefore, a very significant development. It may just be an “extremis” case, resulting from sanctions on Iran and Russia. It may also be a step in the direction of remonetisation.
Our misleading media
First, let me clear up the fake news.
I first spotted the story at Ross Norman’s site Metals Daily and, with Ross’s kind help, have since done some digging.
“Moscow paid billions in gold bullions to Iran for Shahed drones, leaked documents reveal” says the headline at Indian news site, First Post. “Leak reveals minister's claim that $1.75 billion contract was signed for 6,000 Shaheds and Kremlin ‘paid in literal gold’”, says the subtitle at the Telegraph. (Versions of this story are eyebrow-raisingly similar, leading me to think one has copied and pasted it from the other. But in doing so, with so little vetting, they have also copied and pasted what is misleading).
Here is Andrew Buncombe in the Telegraph:
”Moscow signed a $1.75 billion contract for 6,000 of the unmanned aerial vehicles from an offshoot of the Islamic Republic’s Revolutionary Guard Corps (IRGC) last year, according to leaked documents posted online by a hacker group called the Prana Network.
It reportedly paid in gold bullion, shipping more than two tonnes to the manufacturer Sahara Thunder.”
The thing is - and what neither journalist appears to have noticed - is that two tonnes of gold do not amount to $1.75 billion. Two tonnes are around $130 million.
Some digging leads us to Defence Blog (edit: this site has since gone down) and then the original source for the story, in Ukranian, at news agency Militarnyi. The short of it is that a group of hackers, Prana Network, infiltrated the emails of Iranian company “IRGC Sahara Thunder”.
Moreover, the maths reported at the Telegraph and elswehere are out (I can talk). Russia, it seems has a licence to construct up to 6,000 drones using Iranian parts within 30 months at a price of around $193,000/unit, or $290,000 per unit when ordering 2,000. But, as reader L has pointed out, 6,000 units at $193,000/unit only equates to $1.16 billion. Only at $290,000/unit you arrive at the $1.75 billion figure.
But the important takeaway is this. Russia has been conducting financial transactions and payments with Iran in gold. In February 2023, the Russian organization “Alabuga Machinery” transferred 2.06 tonnes of gold bars to Sahara Thunder. We presume this is as payment for services and goods.
So the story is slightly different, but the point is the same. Russia and Iran have been using gold as currency.
What else, one wonders, has Russia been using gold to buy? And off whom?
The shortcomings of gold in international trade
To use gold is a long-winded way of doing business. Gold is heavy. There are security issues. They will have had to fly it over. (The logistics of transporting gold are one reason bitcoin will probably win the battle to be the default settlement currency outside of the banking system).
Under classical gold standards, gold ownership could be transferred without the gold ever having to leave the vaults of trusted banks in London, New York and Switzerland. But if the SCO is to start using gold as currency, it is going to need a trusted third party to hold the gold, to save constantly having to transport it. Of course, Shanghai will have a role in this. Singapore may as well. But I would have thought an extremely likely candidate to play the role of Switzerland will be the United Arab Emirates. It is already the world’s second largest exporter. It’s yet another reason to be long Dubai - as well as gold.
If you are looking to buy gold in these uncertain times, let me recommend the Pure Gold Company, with whom I have an affiliation deal. They deliver to the UK, US, Canada and Europe, or you can store your gold with them. More here.
Don’t forget my two shows next week on Feb 14th and 15th.
If you would like to come, I have two pairs of tickets to give away to paying subscribers for February 14th - Valentine’s Day. The first two people to email - they are yours.
So to other business …