BRICs bring new converts to God's money?

More than 40 countries are now part of the BRICs network, with more requesting to join each month. The BRICs will meet in South Africa on August 22, and although the topic of forming their own BRIC's medium of exchange will not be on the agenda at that meeting, a move away from the US dollar is sought.Referring to Percy Bysshe Shelley's poem Ozymandias about Egyptian pharaoh Ramesis II and the arrogance and hubris of this king of kings, who was forgotten by time, Grant Williams deconstructed the dollar's position as the king of kings as the world reserve currency and world reserve asset.The financial sanctions on Russia have caused developing nations to distrust the US, with many nations fearing they could face similar measures if they caused the displeasure of the world's leading economy and military power."If you are on the fringes of that US sphere of influence, you need to have a plan for the day when it might arrive when you make a decision that the Americans don't like. … That is the biggest geopolitical shift I see happening, and it's incredibly important," Williams told Mining Journal.Andy Schectman, president of Miles Franklin Precious Metals, said the USA has essentially broken the 1973 concordat that ushered in the petrodollar era in which it agreed to protect Saudi Arabia in return for pricing oil in US dollars and using surplus oil proceeds to buy US government debt securities."By weaponising the dollar, the US is shooting itself in the foot," Schectman told Mining Journal, observing how the Saudi's caused a stir at the 2023 World Economic Forum in Davos by stating they are open to settling oil trades in other currencies than the US dollar for the first time in 48 years. Grant Williams Policy While inertia and a lack of a ready alternative will mean the dollar isn't going anywhere soon, "slowly this will change", said Williams. He also stressed the dual aspects of using other currencies as a medium for exchange, but perhaps more importantly, other mediums to hold financial reserves."The freezing of Russian assets made holding reserves in alternatives [to the US dollar] an imperative for every nation as it is now an issue of national security, no matter how friendly they are with the US," said Williams.With BRIC nations far from trusting each other or their currencies, gold is stepping in as the ready alternative, with the Russian sanctions accelerating this. According to the World Gold Council, central bank buying of gold increased to record levels in 2022, and strong buying has continued into 2023, particularly among BRIC nations such as China, Russia and India."The direction of travel is very clear. 2022 saw record purchasing of gold by central banks, with the US dollar representing the lowest percentage of central bank reserves for decades. China and Japan are selling dollars: China's holdings have declined by 30% since 2013," said Williams.Saudi Arabia is being courted by both the US to continue trading oil in greenbacks and by China to break with this. Williams noted that Saudi Arabia has yet to join the BRICs. "Any move by Saudi would signal the beginning of the demise of the petrodollar agreement. It remains aggressively courted by both sides," he said.TrustThe Russian sanctions evaporated the trust nations had in the dollar hegemony. Conference host Rick Rule said that until recently, the low coupon on US bonds meant that its preservation of value was a lie. Yet, despite this, it was still valued as a global reserve currency because " at least it was a deep, transparent and liquid lie. People don't trust the dollar, but they trust it more than they trust each other, up until now," he said."Oil is now sold in [China's] Yuan, and the Yuan can be immediately convertible to gold on the Shanghai exchange. Why would Saudi Arabia want to do business in the dollar going forward?" asked Schectman."As the financial landscape changes, [the BRICs] want to trade among themselves and move away from the US dollar. The USD has not gone away, but it is drifting, and other currencies have come in. BRICs are going to trade among themselves and link to gold, creating a new kind of gold standard and new currency pegging hierarchy we have not had since Bretton-Wood," said political-financial expert and author Dr Nomi Prins.In addition to the growth in membership of BRICs, Schectman also identified the rise in influence of the Shanghai Cooperation Organisation (SCO), a Eurasian political, economic, international security and defence organisation established by China and Russia in 2001. "SCO is the largest regional military and financial corporation in the world and covers 40% of the world's population, and they are not going green," he said. Dr Nomi Prins Gold to US$3000/ozFor Brett Eversole, lead editor and analyst at Stansberry Research, gold is a short-term buy and long-term boom, as are gold equities. "$3000/oz gold is inevitable in the coming years. Buy when gold is rising in multiple currencies. It is a true bull market if gold is going up in all major currencies," he told delegates.Gold is often hailed as a hedge against inflation, but Eversole said it had failed in this role due to the strength of the US dollar. "Since 1973, the inflation rate rose in 21 years and gold in only 13, so 60% of the time. The dollar was gold's Achilles Heel. Gold soars when the dollar falls. Since 1973, the US dollar declined in 20 years, and gold was up in 17, an 85% win rate. The US dollar hit a long-term peak in 2022 and has declined heavily since then, and we are seeing the start of a six-to eight-year bear market for the dollar, which makes $3000/oz and higher possible," he said.The rise of cryptocurrencies in recent years took some of the shine off gold by presenting an alternative means of holding value. However, the FTX cryptocurrency exchange collapse in November 2022 has reduced trust in these."With the collapse of FTX, which was the investment of choice for many crypto tourists, Ontario Teachers and some of the Quebec Pension plans, for instance, it is no longer a question of when those large pools of capital will come into crypto, but if. If it ever arrives, that date is in the distant future, leaving gold as the last great scalable hedge for currency risk and the last great, uncorrelated asset class that large investors can use for those purposes. That's probably a good setup for gold," Dave Lotan, chief executive of LHI Capital, told Mining Journal.US interest ratesThe dollar strengthened as the US Federal Reserve aggressively increased interest rates to stave off inflation. July saw another quarter-point increase to 5-5.25%, bringing rates to their highest level in 22 years. However, whether or not the USA is in a recession and what that means for interest rates remains a focal point of discussion."Interest rates have doubled since last year to 5%. The rapid rate increase has seen the value of the treasuries banks hold go down, giving them a liquidity problem. 722 banks in the US are at risk of failure, according to the Federal Reserve, but it hasn't changed its policy. If banks fail and depositors leave, that is a problem for the banking system. If the Federal Reserve is blessing [bank] mergers, it creates a top-heavy effect, which is one of reasons for the 2008 [financial crisis]," Dr Prins told delegates.Economic stimulus additionBrien Lundin, author of The Gold Report newsletter, highlighted how the US economy has been lifted by easier money and become dependent on it, like an addict who needs increasing doses to produce an effect. "The process of giving ever easier money whenever there was a hiccup has left the Fed with only one policy prescription. When they have tried to raise rates [in the past 20 years], they couldn't get past the mid-point of previous rates, creating two problems: markets are addicted to ever-easier money, and the Fed has to do more than before when it comes to rescues," Lundin told delegates.With G20 non-financial debt doubling since 2009 to $250 trillion when the coupon on the debt resets from around 1% to 5% annual interest expense is forecast to soar by $8 trillion, "equal to the combined GDP of Germany and Japan. This reset will put a machete to the skulls of zombie companies [that are over-leveraged]. The Fed aim of higher for longer [to bring inflation back to 2%] can't work," said Lundin.Lundin said the debt levels and interest rates mean Federal Reserve chair Jerome Powell cannot keep interest rates high for long. "The interest payments on US debt will move above $1 trillion per year this year, more than the country spends on defence, and so it will become a political problem," he said.Gold equitiesWhile not good news for the overall economy, the likelihood of easing interest rates being just around the corner, which would further weaken the US dollar, is likely to be good for precious metals and related equities. "Gold is in an outstanding position right now, and miners have outperformed gold since the beginning of July," said Lundin."This probably is a very interesting time to invest in gold equities. Interest rates have been raised so rapidly by the Federal Reserve that we really haven't had a chance to see how the underlying economy will react. A lot of businesses bought by private equity sponsors that levered up will begin to suffer, and there will be a rotation away from the profitless tech companies, which have been all the rage. Mining companies, gold companies would likely be a destination for some of that investment capital," said Lotan.

ABOUT

SOLUTIONS

LEGAL

SOCIAL

PRECIOUS METALS

BRICs bring new converts to God's money?

Already have an account? Sign in here

MORE ON THIS TOPIC

FROM OUR PARTNERS

RESOURCE STOCKS

Forsys Metals' pipeline of catalysts to excite the market

RESOURCE STOCKS

The largest mineable measured uranium deposit in the USA

MOST POPULAR

MJ COMMENT

Lithium and gold: a tale of two extremes

REGULATION

What next for Cobre Panama?

ENERGY MINERALS

TMC sues Greenpeace over deep-sea mining protests

EXPLORATION & DEVELOPMENT

Cooper roars on thick red metal hit

RESEARCH

Premium subscribers only

View more

Mining Journal Intelligence World Risk Report 2023 (feat. MineHutte ratings)

Mining Journal Intelligence Mining Equities Report 2023

Mining Journal Intelligence Global Leadership Report 2023: Social licence

Mining Journal Intelligence Project Pipeline Handbook 2023

THE ASPERMONT BRAND PORTFOLIO

Login

Not a Subscriber?

Subscribe Now