August 29

BRICS Summit: Expanding and Stronger Than Ever, Where Does Gold Stand?


The U.S. dollar has been the dominant force in global finance for years. But a recent declaration by Russian President Vladimir Putin at the 15th BRICS summit in Johannesburg heralded a potential shift. He stated unequivocally: "De-dollarization is an irreversible process." 

Behind this statement stands BRICS, a collaborative force of five major economies: Brazil, Russia, India, China, and South Africa. Together, they aim for a financial future less dependent on the U.S. dollar and backed by gold

While this may have seemed far-fetched years ago, BRICS is no longer about these five countries. Following the Johannesburg summit, the organization is stronger than ever, expanding with six new members and extending invites to Saudi Arabia and Iran

What might this mean for the future of gold, the U.S. dollar, the global order, and the world economy?  

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BRICS' Move Towards a Gold-Backed Currency

The concept of a BRICS currency isn't new. However, the nations now see a pivotal moment to actively shift away from the dollar and embrace a gold-backed alternative. What led us here?

Background Info

Given its geopolitical interests and desire to advance de-dollarization, Russia first proposed the idea of a BRICS currency in 2019. Their vision? A currency based on a collective of national BRICS currencies, each weighted by their respective GDP share and backed by gold. 

Not intended as everyday legal tender, this unit would act as a benchmark for trade and investment within the BRICS community and their trade partners. Russia's 2022 invasion of Ukraine and resulting isolation from the dollar-dominated financial system further fueled discussions about creating a new financial order less dependent on the West.

The Proposal: A Currency Backed by Gold Reserves

While not envisioned as an everyday currency, this gold-backed unit has the potential to be a game-changer. The use of gold as its foundation not only lends a greater degree of trustworthiness (compared to traditional fiat currencies prone to inflation) but also stands as a symbol of sovereignty and resilience against geopolitical upheavals and sanctions. 

Other BRICS countries became increasingly vocal in their support, recognizing the currency's promise. For instance, in August 2023, Brazilian President Luiz Inacio Lula da Silva endorsed it to counter dollar rate fluctuations.

Why They’re Doing It

The U.S. dollar dominates global finance, comprising 59% of central bank reserves and driving most international commerce. While this stature grants the U.S. considerable leverage—from enforcing sanctions to sculpting global trade rules—it also creates vulnerabilities for other nations, especially with rising U.S. debt and dwindling confidence in the dollar. BRICS nations see an opening here to reduce their dollar reliance, strengthen collective ties in areas like trade, and create a more multipolar financial landscape.

BRICS's Game-Changing Updates

From August 22 to 24, 2023, Johannesburg hosted leaders from Brazil, Russia, India, China, and South Africa at the 15th BRICS Summit. This year's summit stood out not just for the in-depth discussions among member countries and the business sector but primarily for the organization's expanding influence with the inclusion of new member countries.

BRICS' Expansion

In just two days, BRICS dramatically expanded its reach and influence by incorporating six new nations: Argentina, Indonesia, Mexico, Turkey, Egypt, and Nigeria. Yet, this move wasn't merely a numbers boost. These countries enrich BRICS's cultural, economic, and strategic strengths. BRICS was sending a message: "We're here to counter traditional U.S. dominance." Moreover, despite their historic rivalry, involving regional powerhouses like Saudi Arabia and Iran only strengthened this message.  

The Rationale for Expansion

Emerging markets crave a larger footprint in global governance. However, there’s a noticeable chasm between their potential influence and their current say in international affairs. BRICS, with its expanding membership, signifies a possible power shift.

With international institutions such as the WTO, World Bank, and IMF showing signs of stagnation, BRICS sees now as the time to take a more aggressive and proactive approach. In other words, they see signs of weakness and an opportunity to strike when the iron’s hot. 

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How Could BRICS’ Future Impact Gold?

The BRICS alliance and its goal of challenging U.S. dominance with a gold-backed currency is ambitious and controversial. How could it affect the gold market and the world economy if all goes according to plan? 

Supply/Demand Dynamics

A gold-backed currency would require BRICS countries to hold large amounts of gold reserves to back up their trade and investment transactions. This practice could increase the demand for gold, drive its price, and encourage central banks of countries wanting to join the alliance to increase their gold-purchasing activities. Willem Middelkoop, founder and CIO of the Commodity Discovery Fund, believes this precise scenario could significantly raise gold prices.

Surpassing U.S. Gold Reserves: Sooner Than You Think 

China and Russia are among the world's top gold producers and consumers. According to reports, China added 21 tons of gold to its reserves in June 2023. Simultaneously, Russia could surpass China as the largest gold producer this decade after tripling its gold production over the last 20 years. Yet, beyond China and Russia, BRICS's collective gold reserves could surpass the U.S.’s by the end of this year.

Ripple Effects on the U.S. Dollar, Treasuries, and Power Dynamics

A gold-backed currency from BRICS might challenge the U.S. dollar's reign as the global reserve currency. Such a shift could diminish the demand for U.S. Treasuries, potentially reducing their value and causing a rise in already high U.S. interest rates and inflation. 

While this effect won't happen tomorrow, just the fact that it's evolved from mere discussion to potential action marks a pivotal shift in global power dynamics. Importantly, it could also act as a positive catalyst for gold, amplifying its significance and demand in global markets.

The Key Takeaways

BRICS nations have become increasingly influential in the global economy and only look to be getting stronger after the recent summit in Johannesburg. The group's expansion and ambitious objectives should serve as a warning sign to anyone who thinks the U.S. dollar will remain dominant forever. 

Meanwhile, for gold, these developments could be a major catalyst. As this tangible asset remains a safe haven and hedge against currency risks and economic uncertainty, its role as the backer of this brand-new currency could give it renewed shine in the eyes of the global economy. It will be interesting to see how the BRICS mission will take shape. Could a multipolar world truly be on the horizon?

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About the author 

Robert Samuels

Robert Samuels is a financial copywriter and business advisor. After teaching himself stock market basics and financial fundamentals, he leveraged this newfound passion into a Master’s Degree from Harvard University’s ALM Finance extension program, where he received a 3.87 GPA and Dean’s List distinction.

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