A bullish case for gold

U.S.-Russia talks Monday got off to a promising start. But during yesterday's round, it became clear Washington simply will not give in on one of Moscow's key demands — that Ukraine be kept out of the U.S.-led NATO alliance.

"Some senior Biden administration officials," said The Wall Street Journal, "have weighed stringent sanctions on Russia including disconnecting Moscow from the SWIFT international banking system and preventing Russian institutions from using the U.S. dollar."

If this really becomes reality, what will happen? Well, I think it will be a huge booster for gold! 

You see right now "the global share of U.S. dollar-denominated exchange reserves declined to 59.15% in the third quarter," writes financial blogger Wolf Richter at his Wolf Street site. Here's the trajectory going back to those early de-dollarization meetings in 2014.

This de-dollarization process has moved at evolutionary speed. But if Washington kicks Russia out of SWIFT and denies Russia access to dollars altogether? Then the de-dollarization process will accelerate much faster. Over the years, an "Axis of Gold" — Russia, China, Iran and Turkey -- has been pursuing a payments system that's "free of hacking, tracking or interdiction by the U.S. and free of U.S. dollars. This gold-based payments system will dilute and ultimately eliminate the impact of U.S. dollar-based sanctions. If Russia is kicked out of SWIFT, the net impact on the dollar won't be positive but hugely negative over time and global markets will lose more confidence in the dollar. Probably this is the reason why US$ had broken down from its important support, the 50 DMA yesterday. If the trend continues, US$ will weaken further at a faster pace. As such, this may be the trigger for gold to start its next leg up.