
Marin Katusa - Chief Energy Investment Strategist
Casey Research
Report: India and Iran are hammering out a deal to trade oil for gold
Rumors are swirling that India and Iran are at the negotiating table
right now, hammering out a deal to trade oil for gold. Why does that
matter, you ask? Only because it strikes at the heart of both the value
of the US dollar and today's high-tension standoff with Iran.

But that line doesn't make sense, and the sanctions
will not achieve their goals. Iran is far from isolated and its friends –
like India – will stand by the oil-producing nation until the US either
backs down or acknowledges the real matter at hand. That matter is the
American dollar and its role as the global reserve currency.
The short version of the story is that a 1970s deal
cemented the US dollar as the only currency to buy and sell crude oil,
and from that monopoly on the all-important oil trade the US dollar
slowly but surely became the reserve currency for global trades in most
commodities and goods. Massive demand for US dollars ensued, pushing the
dollar's value up, up, and away. In addition, countries stored their
excess US dollars savings in US Treasuries, giving the US government a
vast pool of credit from which to draw.
We know where that situation led – to a US government
suffocating in debt while its citizens face stubbornly high
unemployment (due in part to the high value of the dollar); a failed
real estate market; record personal-debt burdens; a bloated banking
system; and a teetering economy. That is not the picture of a world
superpower worthy of the privileges gained from having its currency back
global trade. Other countries are starting to see that and are slowly
but surely moving away from US dollars in their transactions, starting
with oil.
If the US dollar loses its position as the global
reserve currency, the consequences for America are dire. A major portion
of the dollar's valuation stems from its lock on the oil industry – if
that monopoly fades, so too will the value of the dollar. Such a major
transition in global fiat currency relationships will bode well for some
currencies and not so well for others, and the outcomes will be
challenging to predict. But there is one outcome that we foresee with
certainty: Gold will rise. Uncertainty around paper money always bodes
well for gold, and these are uncertain days indeed.