Here are the figures I used from various reliable sources.

For simplicity's sake, I rounded off brent and gold prices.

So, @ 3.1M bbl/day, India spends $341M/day on oil. Right away you can see that annual domestic gold production would only pay for 2 days worth of oil. The rest would have to be paid with imported gold. Now, if India paid for all of its oil in gold, she'd need 2,420 metric tons per year. Assuming some oil is produced domestically, and some is paid in dollars, there's still quite a gap between 960 tons and 2,420. The situation is even worse when you consider that around half the gold imported goes to private hands in the form of jewelry and isn't available for trade purposes. The implication here is that should India have to buy all its oil with gold, it would need to at least double it's present gold imports.

There's another problem, though. Can the oil producing nations consume enough Chinese and Indian goods for trade to balance? In other words, does the gold flow in both directions, or does it accumulate in mostly OPEC hands, and if so, what does that imply for international trade and finance? Under the present dollar based system, dollar payments accumulate in OPEC hands and are basically recycled into US and European bonds, thus putting a floor under interest rates. Presumably that support will be gone if the world goes to gold settlement, or does OPEC find a way to recycle the gold, effectively transforming it into global purchasing power so nations can buy their oil?

I don't have any answers here (sorry) I'm just trying to puzzle out what it all means. I'm not even sure if gold for settling international trade can work. Maybe there isn't enough to go around, or maybe you end up with the same lopsided arrangements you have with the dollar?

Another question with no answer: why is the USA pursuing a foreign policy that puts the dollar reserve system at risk? What's in it for them?

ebear