By Deepak Rangan
There are reports floating that India will be paying Iran in Gold instead of the US Dollar for the oil imports. Though this might just make the goldbug in you to rush out and buy gold, we have to remember that this has not been confirmed-its only a rumour.
Israeli-based news website DEBKAfile reported that Iran and India are negotiating backup alternatives with China and Russia, should the US and EU find a way to block the gold payment mechanism
India imports close to $12 billion of crude oil annually from Iran, the report states. Considering gold prices at $1600/oz, India will have to pay almost 240 tonnes of Gold annually for its oil imports. With total Indian gold reserves at only abut 550 tonnes, the above claim that India will pay Iran with gold looks just another rumour.
There has been no official confirmation from either India or Iran with regard to the issue and more importantly there has been no major price change in gold even after the reports surfaced- an indication that the report, in all possibility, is just another rumour.
However, what may be possible is for a temporary arrangement in Gold. In the event it becomes almost impossible to pay Iran, India may decide to pay a part of the owed or impending payment in Gold. But other than that, unless official confirmation is received, it is hard to believe the DeBKAfile report.
A temporary arrangement will not cause a sharp spike in gold, since Gold will be taken out of the reserves. It will only be a continuous dealing in Gold that will cause a sharp upmove since it will require purchase of gold. But then, which country will like to deplete its gold reserves in this time of financial crisis.
