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RT  |  The Bank of Russia has resumed gold purchases this week, but more importantly, the regulator is doing so at a fixed price of 5,000 rubles ($59) per 1 gram between March 28 and June 30, raising the possibility of Russia returning to the gold standard for the first time in over a century.

If the country takes the next step, as has been proposed this week, to sell its commodities priced in rubles, these combined moves could have huge implications for the ruble, the US dollar, and the global economy.

To get some answers, RT spoke to precious metals analyst Ronan Manly at BullionStar Singapore.

— Why is setting a fixed price for gold in rubles significant?

By offering to buy gold from Russian banks at a fixed price of 5,000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar.

We can see this linkage in action since Friday 25 March when the Bank of Russia made the fixed price announcement. The ruble was trading at around 100 to the US dollar at that time, but has since strengthened and is nearing 80 to the US dollar. Why? Because gold has been trading on international markets at about US$62 per gram which is equivalent to (5,000 / 62) = about 80.5, and markets and arbitrage traders have now taken note, driving the RUB/USD exchange rate higher.

So the ruble now has a floor to the US dollars, in terms of gold. But gold also has a floor, so to speak, because 5,000 rubles per gram is 155,500 rubles per troy ounce of gold, and with a RUB/USD floor of about 80, that’s a gold price of around $1,940. And if the Western paper gold markets of LBMA/COMEX try to drive the US dollar gold price lower, they will have to try to weaken the ruble as well or else the paper manipulations will be out in the open.

Additionally, with the new gold to ruble linkage, if the ruble continues to strengthen (for example due to demand created by obligatory energy payments in rubles), this will also be reflected in a stronger gold price.

— What does it mean for oil?

Russia is the world’s largest natural gas exporter and the world’s third largest oil exporter. We are seeing right now that Putin is demanding that foreign buyers (importers of Russian gas) must pay for this natural gas using rubles. This immediately links the price of natural gas to rubles and (because of the fixed link to gold) to the gold price. So Russian natural gas is now linked via the ruble to gold.

The same can now be done with Russian oil. If Russia begins to demand payment for oil exports with rubles, there will be an immediate indirect peg to gold (via the fixed price ruble – gold connection). Then Russia could begin accepting gold directly in payment for its oil exports. In fact, this can be applied to any commodities, not just oil and natural gas.

— What does that mean for the price of gold?

By playing both sides of the equation, i.e. linking the ruble to gold and then linking energy payments to the ruble, the Bank of Russia and the Kremlin are fundamentally altering the entire working assumptions of the global trade system while accelerating change in the global monetary system. This wall of buyers in search of physical gold to pay for real commodities could certainly torpedo and blow up the paper gold markets of the LBMA and COMEX.         

The fixed peg between the ruble and gold puts a floor on the RUB/USD rate but also a quasi-floor on the US dollar gold price. But beyond this, the linking of gold to energy payments is the main event. While increased demand for rubles should continue to strengthen the RUB/USD rate and show up as a higher gold price, due to the fixed ruble - gold linkage, if Russia begins to accept gold directly as a payment for oil, then this would be a new paradigm shift for the gold price as it would link the oil price directly to the gold price.