There have been lots of speculations about the increase in the price of gold by some 50 percent (from $2,800 to above $4,000 per ounce) since February 2025. Many attribute the increase to global political uncertainty, debt levels in the U.S., and countries looking for alternatives to the U.S. dollar as a response to the tariffs wars. However, these fears and arguments are not new such that they were already priced. Which calls for an explanation of the timing, whether or not gold will remain at this price, or if it will rise or decline.
The increase in price since February has not been accidental. This is when the U.S. announced its policy to harshly enforce sanctions targeting Iran’s oil supply chain, to blockade the country’s petroleum exports. The sanctions applied to many entities across countries, but the evidence is that Iran still exported $43 billion of mainly crude oil in 2024, according to estimates by the U.S. Energy Information Administration. Officials estimate that around 90% of those exports went to China.
The Wall Street Journal described in an October 5 article how China and Iran avoid the sanctions through bartering. Iran is shipping oil to China and, in return, state-backed Chinese companies build infrastructure in Iran. Involved in this transaction are a Chinese state-owned insurer that, according to the Journal, calls itself the world’s largest export-credit agency, along with a secretive Chinese financial entity whose name is not on any public list of Chinese banks or financial firms.
The article did not mention what is the collateral that China accepted to enter into this bartering contractual agreement. After all, if the U.S. manages to enforce a blockade on Iran, preventing it to ship any oil anywhere, Iran could not pay the Chinese entities involved in the large-scale Iranian projects, as Iran has virtually nothing else to sell except oil. Its inventory of gold is the only collateral it can offer to China, since the SWIFT system has been preventing Iran from using the financial system to pay foreign countries. Using gold as collateral, allows the two countries to overcome sanctions, and that’s what China and Iran are doing.
The increased use of gold as collateral in international barter agreements to overcome sanctions and tariffs suggest that the increase in its price is not a sign of increased chances of U.S. default, massive devaluation, or “de-dollarization.” It is true that using gold as collateral instead of Treasuries weakens marginally the demand for dollars and keeps interest rates marginally higher than they would be otherwise. Just the same, the amount of gold central banks have and who may be sanctioned is insufficient for serving as collateral if international bartering trades were to increase.
In fact, we may not even know what central banks of centralized countries, drawing on religious or secular ideologies, have. Since 2011, Iran's central bank hasn’t disclosed how much gold it possesses. Reports from March 2025 suggest that Iran has imported at least 81 metric tons of gold bullion in 2024, and converted 20 percent of its foreign currency to gold. From this it’s difficult to assess how much bartering trade Iran can engage in with gold.
In 2011, its central bank declared it had 500 tons, but subsequent reviews showed actual reserves were only around 45. Such massive discrepancy in official numbers in that part of the world is really no surprise (something similar revealed itself with the Soviet Union and other communist countries in the 20th century), and appears to go back millennia in those parts of the world. Here is Aesop’s fable from around 600 BC, about Hermes, who was the Greek God of both trade and … charlatans:
Hermes and His Chart of Lies
Hermes owned all the lies in his cart
With this Treasured Cargo, he Roamed the World,
Distributing Randomly his Bag of Deceptions.
When he got to Arabia.
His cart broke down.
Before repairing,
The Arabs arrived, took all the cargo,
And dismembered the cart.
Hermes was unable to continue - as had no cargo of lies left,
Though he did plan visiting many more countries.
And that’s how it came about that the Arabs are the liars, charlatans
Am telling you: There is not one word of truth
- That leaves their lips.
Although these days, all statistical agencies appear to fit the bill – though using the pseudo-science of macroeconomics to rationalize their mis-calculations.
- An endnote: I wrote the above before Monday's announcement that President Trump may come to an agreement with China about tariffs. Unsurprisingly, gold dropped by some 5%, as the China might agree to participate in the sanctions on Iran, which would mean less use of gold as collateral.
