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Last Updated on: 24th August 2023, 08:03 pm
On August 22, 2023, world leaders representing a coalition of emerging economies—Brazil, Russia, India, China, and South Africa (“BRICS”)—convened in Johannesburg to discuss a variety of issues that will set the stage for a new global economy. Purported to represent the interests of the Global South, the BRICS coalition is an aspirational counterweight to the West and the G7 group of wealthy liberal democratic states.
At the top of the agenda were the criteria and plausibility of group expansion. While some members wanted to set the gears in motion for an expanded BRICS, others wanted to set more rigorous membership standards. Until the final day, of the summit, no agreed-upon consensus emerged on the issue of membership ascension.
Despite the divisions that persist, one consensus remains: a de-dollarized future.
For the BRICS economies, a non-dollarized economic alternative is mutually advantageous. For such an alternative to be realized would allow for unfettered access to international markets outside of dollar-denominated trade and the sanctions regimes that limit its access.
Rumors abound that the proposed BRICS common currency will be backed by gold. For gold investors, a BRICS currency will have vast and sweeping consequences even if the proposed reserve currency is fiat or gold-backed. To replace the U.S. dollar as the default reserve currency for emerging economies will in and of itself alter the prospects for gold in the future.
Now, let’s get caught up on the proceedings of the August 2023 BRICS summit and analyze what implications it holds for investors and precious metals enthusiasts.
Table of Contents
BRICS at a Glance: Summarizing the Summit
To help you cut through the noise, we’ve provided a brief overview of the main proceedings and developments that occurred over the course of the Johannesburg summit:
- Top of the agenda was the expansion of the bloc.
- No confirmation of gold’s tethering to the proposed BRICS currency.
- Brazil expressed skepticism regarding the enlargement of the union; whereas Russia and China were mostly aggressively in favor.
- Chinese President Xi Jinping spoke in favor of “reform[ing] the international financial and monetary system.”
- Via video uplink, Russian President Vladimir Putin told the assembly that “the objective, irreversible process of de-dollarization of our economic ties is gaining momentum.”
- South African delegates mention that there was no discussed of a joint BRICS currency
- BRICS currency development was not on the agenda.
- BRICS agreed to expand membership to include Saudi Arabia, Egypy, UAE, Argentina, Iran, and Ethiopia
While some commentators insist that support for a BRICS common currency is limited to Beijing and Moscow, other leaders also firmly advocated for its adoption. For example, newly elected Brazilian President Luiz Inácio Lula da Silva remarked that a BRICS currnecy “increases our payment options and reduces our vulnerabilities,” during a plenary session.
Global de-dollarization, by some metrics, has already begun. According to the Federal Reserve, the U.S. dollar’s share of foreign exchange reserves dropped to a 20-year low of 58% in Q4 2022.
Flags of the BRICS member states (Source)
While Russian state media reported on the adoption of a gold-backed BRICS currency earlier this year, no mentions of the reserve currency were made during the course of the summit.
If the BRICS nations were to successfully develop a gold-backed reserve currency, such an undertaking would signal a long-awaited return to the gold standard. The global implications of such an event could cause the possible devaluation of the U.S. dollar and other fiat currencies.
Gold vs. The U.S. Dollar
For gold investors, the BRICS alliance is perhaps the world’s single most important geopolitical phenomenon. A trading bloc with the power to disrupt the strength of the dollar’s unipolar dominance could greatly influence the price of gold.
Since gold prices and the U.S. dollar have shared an inverse correlation at multiple points in their history, we could see gold prices rise dramatically in the event that a BRICS-led reserve currency devalues the U.S. dollar.
Anticipation of a disruptive event against the U.S. dollar could at least partially explain why BRICS central banks—and the People’s Bank of China, in particular—have been accumulating gold bullion reserves at a record-breaking pace in recent years.
Savvy investors may want to consider speaking to their financial advisor about accumulating gold as well. If the BRICS coalition forms a monetary alliance, all geopolitical indicators point to potential breakout scenarios for gold.
BRICS Expansion Members: Saudi Arabia, UAE, and More
Regarding expansion, India appeared to serve as the spoiler of the event, with Prime Minister Narendra Modi adding new admissions criteria to the deal prior to its presumptive signing, including a minimum per capita GDP requirement.
Expansion was a divisive topic, as leaders weighed the merits of having new Global South states join their union devised to serve as a counterweight to the West. Among the 40 nations that have expressed interest in joining BRICS, at least 22 have formally submitted an application for membership.
On Thursday, August 25, the last day of the summit, an agreement was reached among pre-existing BRICS members to invite the following countries into the bloc:
- Saudi Arabia
- United Arab Emirates
Full ascension into the union will take place on January 1, 2024.
The announcement of the bloc’s expansion was the most significant news to come out of the summit. The growth of the bloc, though not unexpected, signifies that there is a larger consensus among emerging economies to position themselves as a counterweight against Western hegemony.
What the BRICS Summit Could Mean for (Gold) Investors
At the very least, the BRICS summit reaffirmed the commitment of one of the world’s largest geopolitical blocs that America’s “unipolar moment” is coming to an end. The consequences of a reformed international monetary system will be far-reaching, and will likely cause some degree of destabilization and uncertainty in financial markets.
The BRICS states are home to over a quarter of the world’s population, and their purchasing power exceeds that of the G7. A concerted effort at de-dollarization will not only cause the value of the U.S. dollar to fall, but also the price of gold to rise.
A new global order is emerging, and investors should take note.
Amid a rising tide of uncertainty and upheaval, investors may want to consider rolling over an allocation of their their 401(k) into a self-directed gold IRA. Investing in gold and silver within a tax-advantaged retirement account allows investors to hedge against systemic risk while capturing the potentially enormous upside potential of precious metals.