Topic
There may be more forces than we think there are driving gold prices higher. Last week’s BRICS summit, held in Kazan, Russia, perhaps gave us a roundabout clue to that fact. One of the top stories that came out of the BRICS summit was the news that the BRICS alliance is not – for the moment anyway – pushing ahead with the creation of a gold-backed BRICS currency.
Apparently, India, for one, was firmly opposed to that plan, and Russia’s primary BRICS ally, China, appeared relatively indifferent, or at least didn’t express any sense of urgency for such a move.
Many precious metals markets analysts and BRICS watchers had forecast that this year’s summit meeting would see the announcement of a forthcoming BRICS currency to be 40% backed by gold. And here’s where we may get a clue about the forces driving gold prices higher. Gold prices did, indeed, surge to new record highs in the run up to the BRICS summit – and there was speculation that a primary bullish force pushing gold higher was anticipation of the unveiling of a new, backed by gold, BRICS currency.
But here’s where it gets interesting. The price of gold has continued its sharp rise – moving up by about $50 an ounce, setting yet another all-time high record at $2,790, even after the news came out about “No new gold-backed BRICS”. Logically, one might well have expected a sell-off in the wake of Putin’s announcement that any plans for a new, gold-backed BRICS currency were being shelved for the moment. The significant price push to the upside in the total absence of such potentially favorable news for gold bulls is a pretty clear hint that there are other major economic forces underlying and advancing the bull market in gold and silver.
So, if sustaining the bull market in gold is not dependent on the planned issuance of a gold-backed BRICS currency, then what are the underlying fundamental forces supporting the market? I take my cue on this primarily from market analyst, Alasdair Macleod. Macleod believes that the bull market in precious metals is being, and will continue to be, led by the realization among central banks worldwide of an approaching – and likely inescapable – crisis in the current fiat currency system. He stresses again and again that the rise in the price of gold is a reflection not so much of an increase in gold’s value, but more so of the ongoing loss of value in fiat currencies.
Macleod illustrates his point with an interesting chart that shows a sharp decline in the US dollar relative to the price of gold. He states the following: “The chart below, of the dollar gold price inverted, is actually of the dollar’s loss of value relative to gold, which, as we know, is real money, while the dollar is (merely) credit, depending for its value on no more than foreigners’ collective faith in the US Government.”
(Alasdair’s question – “…the acceleration of this decline is alarming. Do foreigners really want to keep $32 trillion locked up in this failing fiat currency?”)
Macleod also points out the oft-repeated maxim these days, that the US dollar is the most worthless currency in the world…except for all the other currencies. This truth is reflected in the fact that, while falling off a cliff in value relative to gold, the US dollar has yet continued to rise against other fiat currencies.
In a recent analysis, Macleod rather ominously concludes, “A rising dollar gold price is less about event-driven bullish speculation about the reintroduction of gold by BRICS for trade settlement purposes, and more about a paradigm shift in the relationship between fiat credit and real money, which is physical gold…big Asian players now panicking out of dollars and its fiat dependents, while their opposite numbers in the west are selling lesser currencies, should tell us that the entire structure of unattached western credit is at risk of collapse much sooner than even those who see these dangers might think…all that gold in Asian government hands is likely to be used defensively to stop their currencies from being dragged down with the dollar’s collapse — which, though we might not know it yet, is already underway.”
In addition to the ongoing massive gold buying by central banks, gold and silver prices are just now beginning to be further underpinned by smart private investors who are looking to gold as a hedge against the risks of continuing economic turmoil and political uncertainty. It’s only very recently that inflows to gold and silver ETFs, and investments in gold and silver mining stocks have begun to tick substantially higher. Those investment flows indicate that at least some investors are waking up to the idea that gold and silver are, effectively, undervalued assets.
Putin followed his splash of cold water on a gold-backed BRICS buck with talk about the use of digital currencies and the ongoing development of what’s currently known as “BRICS Clear” – the trade settlement and depository infrastructure that the BRICS alliance is creating in its desire to build an alternative to the current financial system that is essentially controlled by the United States.
Much of the motivation for many of the moves that the BRICS alliance and the Shanghai Cooperation Organization have made, and are making, stems from the sanctions that the US levied on Russia as part of the US support for Ukraine in the Russia-Ukraine war. Those misguided sanctions are, ultimately, going to have monumental and long-lasting consequences in the arena of global finance. They made it crystal clear to Russia, China, the other BRICS nations – and all the other nations in the world – that if your country is exposed to being under the financial thumb of the United States, then all it takes to majorly disrupt your nation’s finances is making one foreign policy move that the US doesn’t like. Since then, there has been a rapidly accelerating move toward de-dollarization – toward dethroning the US dollar as the world’s pre-eminent reserve currency and toward reducing the ability of the US to effectively employ financial sanctions as a means of getting its way in international relations.
The BRICS Clear financial system should strengthen the alliance, by virtue of the fact that it will (initially anyway) only be accessible to members of the alliance. Whether that means only the actual members of the BRICS group, or extends to partners of the alliance, isn’t clear at the moment. Either way, the development of BRICS Clear will undoubtedly enhance the attractiveness of the BRICS group nations as trading partners, and likely increase the number of additional countries – which already numbers in the dozens – that have applied for membership in BRICS.
The BRICS Clear system will offer several clear advantages (see how I did that? BRICS Clear…clear – hehehe), including the following:
The BRICS Clear financial system provides an obvious alternative for countries such as Russia, which have been, effectively, locked out of the SWIFT banking system in the West. It will be designed to work in tandem with the existing financial infrastructures of each BRICS nation, with transactions being confirmed by appropriate certification centers within each BRICS country.
Regarding the development of digital forms of currency, I explained in a recent article here Russia’s three-year plan to roll out a digital form of its ruble, with full implementation expected to be achieved by mid-2027. (****SAM – INSERT A LINK HERE TO MY BLOG ARTICLE – “Russia Stacking Silver as a Strategic Asset…and Introducing a CBDC Ruble”****)
Okay, so no new BRICS currency at this time. However, many statements by Putin and leaders of other BRICS nations stressed that the alliance will be putting increasing emphasis on conducting international trade using local currencies. Most pointedly, this emphasis steers BRICS partners – and even other nations currently outside the BRICS economic alliance – away from trade using the world’s current reserve currency, the US dollar.
But it should be noted that there’s not complete agreement in regard to a totally unbridled push toward de-dollarization. India, for one, indicated that it will continue to conduct some of its international trade in US dollars, whenever that seems like the appropriate choice. This lack of unanimity highlights one of the problems of the BRICS group. Under its current structure, votes for major policy changes have to be unanimous – with every member nation voting in favor of the policy - in order to pass. Such unanimous agreement was hard enough to obtain when there were only five BRICS nations. It’s more than twice as difficult to achieve with 10 member countries. There are at least 50 or 60 nations with a strong interest in joining the BRICS group. In order to avoid getting bogged down by failures of unanimous agreement, it’s likely that the group will only be offering partnership agreements – rather than full group membership – for the immediate future.
Overall, the movement to dethrone the US dollar continues. The debt trap that the US government is in becomes more starkly clear with every passing day – and not just to countries in the BRICS group. More and more nations from one side of the globe to the other are asking themselves whether they really want to continue subsidizing the $35-trillion-and-growing US federal debt. BRICS members are, however, leaders in the anti-dollar movement. Russia is completely clear of investments in US Treasury securities. China has shed itself of nearly two-thirds of the amount of US Treasury bonds that it once customarily held, and every indication is that it plans to get rid of the rest in the not-too-distant future.
Many other formerly regular buyers are also joining the queue lining up to trim back their holdings of US Treasuries. The net effect of this global movement away from the US dollar is two-fold:
In any event, the “Kazan Declaration” – the collection of 100+ statements issued by the summit that summarize the current attitudes, policy stances, and goals of the BRICS group – makes the group’s anti-dollar stance clear. More than one statement in the Declaration severely criticizes US financial sanctions and the weaponization of the US dollar as being both unlawful and undesirable. The BRICS group states, “We are deeply concerned about the disruptive effect of unlawful unilateral coercive measures, including illegal sanctions, on the world economy, international trade, and the achievement of the sustainable development goals."
Another key point in the Declaration was the plan to have Russia develop a BRICS grain exchange – a commodity trading exchange for the BRICS group, one that is designed to wrest control of agricultural prices away from the US financial markets and place it where the BRICS nations believe it more properly belongs, under the auspices of the BRICS group, which, together, comprise the world’s largest agricultural producers. If you throw in China’s recent purchase of the London Metals Exchange, one can begin to see an entire alternative financial system infrastructure being developed. That was, in fact, a mantra often repeated in the Kazan statements – the desire to move away from a unipolar financial system under the control of the United States, to a multipolar system with multiple financial centers across the globe.
Here are some other snippets from the Kazan Declaration:
“65. We reiterate our commitment to enhancing financial cooperation within BRICS. We recognize the widespread benefits of faster, low cost, more efficient, transparent, safe and inclusive cross-border payment instruments built upon the principle of minimizing trade barriers…We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners. We encourage strengthening of correspondent banking networks within BRICS…”
“73. We agree that resilience of supply chains and unimpeded trade, along with domestic production, are crucial for ensuring food security and livelihoods, especially for low-income or resource-poor farmers, as well as for net food importing developing countries…We reaffirm the need to develop a fair agricultural trading system…In this regard, we welcome the initiative of the Russian side to establish a grain (commodities) trading platform within BRICS (the BRICS Grain Exchange)…”
“83. We reject unilateral, punitive, and discriminatory protectionist measures that are not in line with international law, under the pretext of environmental concerns, such as unilateral and discriminatory carbon border adjustment mechanisms (CBAMs), taxes, and other measures…We also oppose unilateral protectionist measures, which deliberately disrupt the global supply and production chains and distort competition.”
“99. Recognizing that the BRICS countries have a huge tourist potential…We commit to further strengthening people-to-people connectivity…developing joint projects in the tourist sphere. We appreciate the adoption of the Roadmap for BRICS Tourism Cooperation…”
The Declaration’s comments on the situation in the Middle East, while expressing a desire for a peaceful resolution and return of all hostages, clearly favored the Palestinians over the Israelis.
One thing I noted in the Declaration was several statements of support for various United Nations projects and organizations. I interpreted that as indicating the BRICS group’s desire for more globally broadened control of the world’s economy – which I further interpret as indicative of the group’s desire for less control being concentrated in the hands of the United States.
I also noticed several statements in support of climate change initiatives. However, I think those are mostly just paying lip service to the climate change/green energy crowd. The fact is that China and the emerging economies of Brazil and India are jam-packed with coal plants and other fossil fuel sources. The BRICS nations are primarily focused on having adequate energy resources to fuel rapid economic growth – and that means fossil fuels take precedence over “green” energy sources or environmental concerns.
The recent BRICS summit, hosted by Putin, in Russia, did not announce the roll out of a gold-backed BRICS currency. But it did show a strong economic alliance that is taking significant steps to improve its members standing in the global economy. The most noteworthy projects going forward are the BRICS Clear trade settlement and depositary infrastructure, and the BRICS grain exchange. The establishment of a BRICS commodity trading exchange could, in a relatively short period of time, see a new center of power arise in agricultural trading, outside of the US, as the BRICS nations, together, are the largest agricultural producers in the world.
The summit also served to reiterate the BRICS anti-dollar stance and determination to expand trade in local currencies and to develop an alternative financial system to the SWIFT system in the West.
The price action in gold, before, during, and after the BRICS summit, appeared to indicate that the rise in gold prices is primarily supported by the continued demand from central banks. Within BRICS, Russia is the country hottest on the idea of a return to the gold standard. China doesn’t appear to be in any rush on that front, although it’s ongoing massive gold purchases indicate a firm commitment to amassing real money. The Chinese may be waiting for some sizeable cracks to appear in the world’s fiat currency system – before riding to the rescue with a gold-backed currency.
(EXTRA - Fun Facts to Know and Tell Your Friends – the Short Squeeze in Silver: Apparently, the short squeeze in silver is on. Five bullion banks are reported to be short approximately 700,000 to 800,000 ounces of silver. They knocked the price of spot silver down about a dollar today (only temporarily – it’s now only down about 60 cents on the day, which is evidence of silver’s increasing resilience and ability to bounce back quickly in response to selling pressure…it’s becoming clear that it’s getting harder for the banks to keep the lid on silver and prevent it from blowing up higher). Anyway, today’s attempted slam to the downside is no big deal – Silver is still up about $3 for the month, which means that, for the month, the banks are looking at more than half a BILLION dollars in losses. It’s rumored that somewhere between $35 and $39 an ounce is where they will just have to give up and eat their losses, in order to prevent larger losses from taking them completely under financially.)
Sources:
https://www.reuters.com/world/factobox-main-points-brics-declaration-2024-10-23/
https://tadviser.com/index.php/Article:BRICS_Clear
https://www.reuters.com/world/factobox-main-points-brics-declaration-2024-10-23/
https://alasdairmacleod.substack.com/p/brics-trade-currency-deferred-or
https://alasdairmacleod.substack.com/p/update-for-gold-and-silver
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