How BRICS is Driving the Gold Price

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Originally published at: https://peakprosperity.com/how-brics-is-driving-the-gold-price/

Executive Summary

Gold has recently surged to $2,800, driven by significant central bank buying, particularly from Eastern nations. The BRICS conference has highlighted a shift towards de-dollarization and the establishment of a new monetary system, potentially backed by gold. This episode explores the implications of these developments on global finance, including the impact on treasuries and Bitcoin, and the potential for geopolitical tensions to influence markets.

Central Bank Gold Buying

The rise in gold prices is attributed to central bank purchases, primarily from Eastern countries, as part of a strategy to back a new BRICS currency with tangible assets like gold. This is not a speculative rally but a strategic move to underpin future monetary systems.

BRICS and De-dollarization

The BRICS nations are working towards reducing reliance on the US dollar by establishing their own trading systems and potentially a new currency backed by precious metals. This move is seen as a response to geopolitical tensions and the weaponization of the dollar.

Geopolitical Tensions

Increased geopolitical tensions, particularly in the Middle East, and the potential for a new world order are influencing global markets. The BRICS nations are preparing for a shift in global power dynamics, which could impact the stability of the US dollar.

Key Data

  • Gold has reached $2,800, driven by central bank purchases.
  • The BRICS nations represent 40% of the world’s population and are moving towards de-dollarization.
  • US net interest expense is nearly a trillion dollars, highlighting fiscal challenges.

Predictions

  • Continued central bank gold buying is expected to support gold prices for the next few years.
  • The BRICS nations may launch a new currency backed by precious metals.
  • Geopolitical tensions could lead to increased defense spending and impact global markets.

Implication

  • The shift towards a BRICS currency could reduce the global reliance on the US dollar.
  • Increased geopolitical tensions may lead to economic instability and impact investment strategies.
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I love the Kobayashi Maru reference. They are getting to the point where they have to reprogram the computer for any chance to win.

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The JP Morgan quote says it all. When you hold a one ounce gold or silver coin in your hand, you know that is something of value and true money. No FRN can ever match that.

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On the possibility of BRICS remonetizing gold, in the week before the start of the BRICS gathering I read (somewhere) that the proposal to members would be a BRICS “Unit” backed 40% gold and 60% a basket of member currencies. It was also intended that in trade between BRICS countries conducted in bilateral national currencies (or, I think, Units), when a country finds itself holding more of a foreign currency than it finds prudent it will be able to exchange it for gold.

I can’t imagine those details were not floated amongst the BRICS members before the gathering to largely positive reviews, but I haven’t followed up to know if the proposal passed through the meeting intact.

Overall, I imagine a floor is being built under gold’s price. Still under construction, it will likely firm up as The Unit is refined and non-USD trade between member nations continues to build. It was, if I recall, Putin who indicated earlier this year that the commodity producing nations ought to be setting commodity prices, not the financializing entities of the West, and that they will do so in future.

The implications are clear: the producers will get more for their goods, the consumers will get less and at higher prices. Standards of living to go up globally, down in the Trans-Atlantic nations. This is why the West is determined to foment conflict, and is newly threatening any nation that wants to stray from USD hegemony. Any means to prevent loss of Western privilege. It is also why the Western elite are moving more purposefully to clamp down on freedom within their own borders.

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Dont like Putin but as many western countries are also commodity/raw material producers, cant disagree here.

This is interesting. How would that currency basket work if country A 300% GDP prints money and country B doesnt do that… Unit should reflect this fact. If that is smart mechanism not screwing country B, EU could adopt this too as there is desperate need for more dynamic mechanism to prevent spenders and savers divide.

A bit idealistic. Staying in this BRICS framework, if my country prints 300%, say my currency is now only 30% worht of previous year currency /unit value, so I gotta pay triple price in my local currency to buy product X from country C converted to Unit money (I assume Unit stays same valid as USD is between third party countries).

Lol what privilege… pay 10x or 3x for same products sold other side of world simply because 10level supply chain gets rich of moving excel sheet rows via shell companies. Let alone gas, fuel, energy is expensive, few jobs around worth doing (to have family, aint jobs usually are for that goal for majority, not luxury life). With this supposed privilege comes beggars always asking handouts from west, guilt tripping every single citizen no matter if they are dirt poor and living in ditch. Poor countries use their “disadvantage” to brush off many of their problems like pollution and many times they get away with it. Even get cash from west to help solve it. But worst is this constant guilt tripping that immigrants dont have, even when they live in west, on taxmoney. If this BRICS system solves this, thats worth in gold, priceless.

If you wanna have family, some “3rd world country” may even be better place as people dont have as high expectations. School might even be higher quality and healthcare, well can you afford it anyway? No divorce laws or people simply dont care bs like that in some countries.

Privilege seems only around when top level government people and diplomats go around world telling marketing how great their country is… also everyone does this same. Nobody tells about problems.

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Good points, VT. For anyone interested, more about the direction BRICS is going, this :arrow_heading_down: is an informative ~ 1 hour interview that IMHO is well worth the listen.

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Thanks, Jan! I don’t get to hear Dugin as much as I want.

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BRICS or no BRICS, gold is a no-brainer. Monetization of debt and hyperinflation is all but a certainty. Just a matter of weighing the different options: vault services, sprott or physical at home.

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As I recall, the idea was that the amount of national currency would vary from nation to nation, according to the strength of each currency.

Also, there was floated another idea: a basket of commodities - either in addition to or in place of currencies - constituting the 60%.

Again, I haven’t followed up to learn the outcome. Either way, Central Banks and Sovereign Funds are sucking up gold.

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More info for anyone interested. Have not read myself yet, but Escobar is always worth my time, I find.

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And some views that are somewhat contrarian in this short read. Note I am not too familiar with the authors. Just posting as an FYI for consideration - in keeping with this not being an echo chamber!

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BITCOIN is the reprogramming but that would end ‘their’ ability to manipulate and benefit the common man.

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Study Putin from and unmanipulated source … start with “The Duran” on YouTube. Lots of corporate media FUD out there.

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Geopolitical Economy founder and editor-in-chief, Ben Norton, wrote a summary of the BRICS proposals and meeting conversation related to a new “multi-currency system”. You might find the article interesting, read it here.

I’ve pulled two quotes related to your question.

BRICS will experiment with distributed ledger technology (DLT, such as blockchain), promoting the use of central bank digital currencies (CBDCs) so nations can settle trade imbalances directly, without the need for the SWIFT system and correspondent banks located in third countries.

There are also plans for the establishment of a BRICS Grain Exchange and associated pricing agency, with centers for trade in commodities like grain, oil, natural gas, and gold, which can likewise be used to settle trade imbalances.

These proposals were outlined in the report “Improvement of the International Monetary and Financial System”, which was co-authored by the Ministry of Finance of the Russian Federation, the Bank of Russia, and the consulting firm Yakov and Partners. (A PDF of the document can be found at the official website of the Russian finance ministry, although if that link does not work, it is also available at the page of Yakov and Partners.)

In discussion of de-dollarization, it is important to distinguish de-dollarization of cross-border payments on one hand and de-dollarization of savings and investment on the other.

In the international financial system, trade in goods only comprises a small percentage of total transactions; the vast majority involve capital flows into and out of bonds, stocks, and the foreign exchange market, along with hundreds of trillions of dollars of outstanding derivatives (financial bets) – a staggering $715 trillion as of June 2023.

In contrast, total global merchandise trade in 2023 was $23.8 trillion according to the World Trade Organization. UNCTAD calculated that world trade in goods in 2022 was roughly $25 trillion, and global trade in services was $6.5 trillion.

In other words, there is an order of magnitude between world trade and global financial transactions. Given this enormous disparity, it is easier to de-dollarize international trade in goods than it is to de-dollarize savings and investment.

That said, the Russian BRICS chairmanship report proposed ideas of how to do both.

In addition to advocating the establishment of a de-centralized BRICS Clear platform, the document called for the “development of an investment hub on the continent of a platform member country”, with “new forms of debt issuance in place of the euro-denominated bonds – potentially denominated in national currencies of the participating countries”.

BRICS should create “an alternative to ANNA (Association of National Numbering Agencies)” that “will allow assigning and maintaining international ISIN, CFI and FISN codes for financial instruments denominated in the national currencies of the BRICS member states”, the authors wrote.

To encourage BRICS members to de-dollarize their reserves, they must make “other countries’ currencies (or a basket of such currencies) more attractive as a store of value”, the report stressed. This can be done by establishing liquidity-provision mechanisms and promoting the “proliferation of fixed income instruments denominated in local currencies to serve as an investment vehicle”.

The Russian BRICS chairmanship similarly proposed the creation of a BRICS Digital Investment Asset (DIA), which it said “will be backed by assets committed by the BRICS constituents”.

Given exchange rate risks in many emerging markets and developing economies, however, in addition to the massive momentum that incentivizes central banks and other investors to hold assets denominated in dominant currencies, the process of de-dollarizing reserves and other savings will be slow and difficult.

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This sounds back to past. Europe functioned this way in 70s.

Interesting concept.

Im not sure how much russia is handling leadership as they are chair in 2024 as not a lot of russian products have managed good quality in general. Bunch of ideas and concepts thrown there. A lot depends on implementation and structure of systems. Im a bit skeptical yet but wars and other conflicts will surely quicken this development to something fruitful. I doubt this would even become real thing without these major conflicts and upheavals(“necessity is mother of invention”).

I dont have illusions that incase US would collapse, BRICS certainly would start to muscle their members similar way. However competitive alternatives keep certain equilibrium , “ambiguity” as they love to say in geopolitics.

Seeing how absurdly overfinancialized world “trade” is ~30Tn$ trade of real products and services, 715Tn$ all assets(not clear to me what this volume is, is mere capital flowing here and there, thus not actual 715Tn or stored funds counted together). Sad thing is, pension funds etc all have effect in markets like we that or not.

Thus this stays big question.

Im pretty sure some kind of agreed BRICS unit(partly gold backed + perhaps other commodities included) will be introduced with dynamic “algorithm” to calculate each currency value relative to it. There is still risk some country could momentarily rig this game but stable design should make that exactly that, momentary gain then disadvantage.

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This is why I think over time the virtues of bitcoin will become the preferred option. The absolutely distributed nature of bitcoin’s validation nodes is superior to the notion of giving all the governments of all the nations that join BRICS a node. The idea is that every country will be able to see all transactions on the new chain and do their own audits. But that still allows for a cabal to manipulate, dispute, take over. Bitcoin’s fully decentralized node system is not similarly hackable.

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For anyone thinking BRICS will be pro-freedom.

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If you look at population, not GDP, BRICS is 46% of global population. Per ChatGPT:

The population of the BRICS nations, following their expansion in 2024, has risen to approximately 3.7 billion people, or about 46% of the global population. This includes the original five countries (Brazil, Russia, India, China, and South Africa) as well as the newly added members: Saudi Arabia, Iran, Ethiopia, Egypt, and the UAE. China and India contribute significantly to this figure, each with over 1 billion inhabitants​.

In comparison, “The West” is generally represented by countries in the G7 and the European Union. The combined population of the G7 (U.S., Canada, U.K., Germany, France, Italy, and Japan) and the European Union’s 27 member states totals around 1 billion people. This population is significantly smaller than that of the BRICS, reflecting about 13% of the global population, versus the BRICS’s nearly half.

Thus, the BRICS nations collectively have a much larger population base compared to the Western alliances, illustrating their growing demographic influence on the global stage.