Challenging the Dominance of the US Dollar: BRICS and the Gold-Backed Currency

What’s fast becoming the largest economic union in the world has just announced a new gold-backed currency aimed deliberately at replacing the US dollar. We are going to find out what’s happening, why it’s happening, and what it all means for a rising and very real new world order.

– The upcoming BRICS summit in South Africa will focus on creating a new gold-backed currency, further accelerating de-dollarization.

– BRICS has emerged as a powerful economic bloc, attracting numerous countries seeking to join.

– De-dollarization may impact US government spending, potentially leading to living within means and prioritizing domestic interests.

Following the end of World War 2, the world outside of the Soviet bloc began to be led by a single super economic and militaristic superpower, namely the United States and most particularly its dollar. This accelerated in the 1970s when the United States struck a deal with Saudi Arabia to standardize oil prices in terms of the US dollar. In many ways, this deal elevated the US dollar to the world’s reserve currency since you could buy oil and gas directly without going through some kind of exchange rate. Moreover, nations buying and selling in US dollars in turn inordinately purchase US Treasury bonds with their surplus dollars to lose money in the exchange process back to their currencies.

This in turn allows the US government to print as much money as they want. They assume that plenty of foreign nations using the US dollar will purchase up all the debt in the form of US Treasuries. All of that changed on Thursday, February 24th, 2022. That’s when Russian forces launched a special military operation into Ukraine. In mere hours, two sanctions were unleashed on Russia from the United States and the European Union, using the US currency against Russia and kicking them off SWIFT, the international financial transaction platform which is inordinately controlled by US banks. Suddenly, in the eyes of many around the world, the dollar transformed from a free international currency into a very powerful and effective weapon that more nations feared would eventually be used against them.

The weaponization of the dollar has escalated the need for many countries to deliberately begin the process of de-dollarization. A few months ago, Brazil and China reached an agreement to ditch the dollar and conduct their cross-border trade with the Yuan, the Chinese currency. Around the same time, China and Saudi Arabia began talks to price Saudi Arabia’s oil sales in the Yuan rather than dollars. Similarly, both the UAE and Qatar have been trading with China using the Yuan in direct payments. Even France just completed their first Yuan-settled liquified natural gas trade with China.

The rise of BRICS is being called the hottest ticket in geopolitics. BRICS stands for Brazil, Russia, India, China, and South Africa, the five foundational nations that have formed a new and powerful economic bloc. Since its formation in the 2000s, the economic bloc has grown exponentially, with dozens of countries seeking to join. Nations such as Saudi Arabia, the UAE, Egypt, Algeria, Argentina, Mexico, and Nigeria are all lining up and applying for membership, making up over 40% of the world’s population. All eyes are fixed on their upcoming summit in August in South Africa because it’s just been announced that the agenda there will center on the creation of a new gold-backed currency that would have at least 20 nations all joining in.

This development is considered by many to be key in accelerating the trend of de-dollarization. More nations are moving away from the US dollar as the dominant global reserve currency. As we saw earlier, de-dollarization is already well underway. The international return to the gold standard appears key here. China, Russia, and India hold substantial gold reserves, with China alone possessing over 50,000 tons. The Shanghai Gold Exchange allows for the conversion of currencies into gold, and this mechanism will likely play a role in the new BRICS currency.

The gold-backed currency used among BRICS nations aims to further erode the dollar and establish a multi-polar world, a world where political and economic power is decentralized away from a single dominant power and shared instead among a variety of political and economic centers. Scholars have argued that the age of a unipolar world, a world with a single superpower, the United States, governing the rules by which all other nations have to live by, is dead. We have already been seeing a multipolar world rising for the last couple of decades.

The gold-backed currency represents a rising new geopolitical world order. It is going to take time before the economics of that world order changes substantially, and that’s because the US dollar remains, by far, the single most dominant currency. There has been significant de-dollarization. In 2001, 73% of global reserves were held in dollars, but that percentage has now decreased to 58%. It is important to distinguish between how much a currency is kept as a share of the reserves of central banks around the globe versus how much it continues to be used in everyday global financial transactions. While nations are seeking alternatives to the dollar, it still overwhelmingly dominates as the currency by which people lend, borrow, and save. It remains the dominant currency by which most nations measure their assets and debt.

The dollar is and will remain very strong for the foreseeable future, even though it’s going to have some major competitors. As more nations de-dollarize, fewer will be buying up US debt, which means that the Treasury can no longer continue to print money at the pace it’s been printing over the last few decades. This means that our government can possibly begin living within our means, stop the endless funding of foreign wars, and prioritize the interests of the people over against the interests of a financial class led by an out-of-control Federal Reserve. If that happens, de-dollarization may not just benefit the international community, it may have extraordinary benefits here at home as well.

Copyright, 2023. TurleyTalks.com

Gold appealing to younger family office investors amid market volatility

Source: CRAIN CURRENCY | Marcus Baram

Jun 15, 2023

KRISTINA RUOTOLO

For centuries, gold has retained an allure as a safe-haven asset, especially during times of turbulence and market volatility. 

Family offices and ultra-high-net-worth investors — using gold as part of their asset diversification strategy — have recently helped boost its price, which has increased 35% in the past five years. Traditionally favored by older investors, this time it’s attracting next-gen family office members, gold market analysts say.

“Since late 2022, investors appear to have gravitated toward the precious metal as a way to preserve their wealth and hedge against the risk of a recession later this year,” said Han Tan, chief market analyst at Exinity Group in Abu Dhabi.

Gold is often favored during times of crisis for several reasons. Despite its high price volatility, it is a relatively secure investment and extremely stable in value. Because it often goes against market and interest-rate changes, gold can serve as insurance against economic downturns. That’s partly due to its rarity and limited supply. 

As a tangible asset, the precious metal — in the form of gold coins, gold bars or jewelry  —  protects investors against inflation, said Joseph Cavatoni, North American market strategist for the World Gold Council.

That protection appeals to family offices, which use gold to diversity their assets and as a “shock absorber in their portfolio” during these times of inflation and high interest rates, Cavatoni said. He’s seeing more interest from European family offices versus the U.S. market, though retail sales to consumers have slowed in India and China due to pandemic-related lockdowns. 

“We’re seeing ultra-high-net-worth individuals come on the scene and make big purchases,” said Bill Voss, founder of Bullion Box, a subscription service that sends a curated box of precious metals every month. One favored strategy for investors, he said, involves building a portfolio that is one-third bullion, one-third semirare numismatic coins and one-third rare coins. 

“Secondarily,” Voss said, “we’re being approached by family offices and other groups about acquisition opportunities in the sector.” 

A major reason for gold’s recent price increase is that it’s being snapped up by more central banks around the world as part of their reserves portfolio, and it’s being used to manufacture electronics and many consumer products like cellphones, Cavatoni said.

Younger wealthy investors who may have been burned by the collapse of the crypto market also are increasingly turning to precious metals — including gold, silver and platinum. 

“We’re getting so many requests from younger generations for precious metals,” Voss said. “It used to always be 50-something-and-older customers, but now it’s skewing much lower.”

Part of gold’s appeal is its tangible quality as a beautiful physical asset, Cavatoni said. For many people, it’s about “I can get a little bling and have it earn at the same time,” he said.

People who don’t necessarily trust the banks right now “want to hold something in their hands,” Voss said. “If more banks crash, they know they have something to go to and put their hands on.”

So far, the outlook for gold looks positive. Spot gold has advanced by more than 7% so far this year, said Exinity Group’s Tan, “on hopes that the Fed is approaching the end of the current rate-hike cycle.” 

All that glitters for now just may be gold. 

AUTHOR Marcus Baram

Marcus Baram is a contributing editor at Crain Currency, where he covers the intersection of finance and politics. Prior to joining Crain Currency, Baram was a staff writer at Fast Company and an editor at Huff Post. He has also written for outlets such as The New York Times, The Atlantic, and Vice. Baram is an expert on economic policy and has a deep understanding of the ways in which politics shapes the global financial system. In his role at Crain Currency, he brings a unique perspective to the complex and ever-evolving world of finance. With his keen analysis and clear writing, Baram helps readers make sense of the important issues impacting the economy today.

Inflation Hedging in Strategic Asset Allocations: Gold or Something Else?

Source: By Roberto Croce, Head of Risk Parity and Alternative Risk Premia, Newton Investment Management North America LLC.

INTRODUCTION

Inflation hedging is of particular interest to investors today, as recent consumer price inflation numbers show inflation rising faster and higher than at any time since the global financial crisis more than a decade ago. In this paper we answer the following questions:

Question 1. Does inflation only matter to investors with liabilities denominated in real dollars?

Answer 1. No. We find that the hedge/no hedge decision does not depend on whether investor liabilities are denominated in real or nominal US dollars. In this paper we will show that high inflation periods are almost as bad on a nominal basis as they are in real terms, particularly when the cash return is zero.

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Gold Strategy

Investors continue to find the Equity markets attractive even with no end in sight to the China and Brexit negotiations.

With investors feeling confident that their investments are in good shape, safe haven investments like Gold and Bonds can be overlooked at this time.

But let us not forget that in 2018 market sentiment flipflopped back and forth daily between “Risk-On” and “Risk-Off” ideology. Every day we continue to see risk in the headlines, whether geopolitical or economic, anything can happen in a moment that will turn markets around. Not to mention the continued ongoing political rumor mill here in the States.

These headlines can take a toll on a trader and investors’ emotions, but can also provide opportunities.

That’s where a Dollar Gold cost averaging strategy can make a lot of sense. When the price of Gold declines, many smart Gold investors see it as a buying opportunity to create a truly balanced portfolio.

At the time of this report, Equity markets are called up over two hundred points. So, when the price of Gold is most ignored by investors that might be the best time to, so to speak, “put your toe in the water” and put in place your dollar cost averaging strategy.

Palladium

Palladium prices have experienced a much-needed correction in the past week and may be vulnerable to further declines in the short term. Despite this continued tightness in supply the market is likely to see prices test higher across the medium to longer term.

To back up that philosophy, Johnson Matthey estimates that the Palladium supply deficit could reach one million ounces in 2019. So maybe there still significant room to the upside in the price.

Today’s Palladium EFP is quoted by some dealers at Minus 40 minus 20. If the EFP stays in negative territory higher prices are always a possibility.

Originally published April 1, 2019