BRICS+ countries are buying gold on a large scale. What could this mean?

After gold hit a record high — what time of year was it? — some investors decided to take profits, leading to a healthy correction in the precious metal’s price to around $100 per ounce. In the gold market, one of the important topics was the high buying activity of the BRICS+ countries. Why do they need so much gold? There are several scenarios in play

A few weeks ago, we started publishing reviews about the gold market in “Subiektivno o Finansach”, written by Michał Tekliński, a well-known gold market expert from Goldsaver.pl (from the Goldenmark Group). We know that among our readers there are many people interested in the gold market and investing in precious metals. This market has its own rules and often follows its own path. Therefore, it is useful to monitor it constantly. Please read on!

Gold is already discounting interest rate cuts.

In mid-July, the price of gold reached another historic high. A new all-time high of over $2,480 per ounce. As often happens after historic highs, a correction quickly follows, which turned out to be very deep. Gold bullion ended last week about $100 below its all-time high.

Gold has reached record highs primarily due to positive economic data from the US. Investors interpreted it as an argument in favour of lowering interest rates in the US. At the moment, investors (as they infer based on the FedWatch tool) are 100% certain that the first US rate cut will occur in September. Only expectations regarding its depth are changing.

Gold investors interpret the prospect of lower interest rates as an incentive to buy gold, because lower interest rates make bonds — an investment alternative to gold — less attractive. But as the metal soared to record highs, speculative buyers took advantage, selling their holdings and taking profits. Further declines in gold prices are unlikely, and upcoming U.S. economic data should remind investors that gold’s appeal will soon increase due to lower interest rates.

The recent correction in gold prices — or at least its size — has also been driven by slightly smaller central bank purchases of the precious metal than in previous months. China — the country that bought the most gold this year — has taken a break from buying for now. However, the People’s Bank of China is likely to decide to take advantage of slightly lower prices and go shopping again in July.

BRICS+ countries are buying gold on a large scale. What does this mean?

Countries associated with the so-called BRICS+ group, which are trying to counter the economic power of the United States. This includes: China, Russia, South Africa, Saudi Arabia and Kazakhstan. Why do they do this and what is their long-term goal? Vahan Roth, CEO of Swissgrams AG, a company that deals with gold tokenization, outlines three possible scenarios.

In the first scenario, these countries will continue their purchases simply because they are diversifying their reserve assets (many Western countries, including Poland, are doing the same). Not much will change in global geopolitics. However, it seems that the BRICS+ countries are not buying gold to ensure that nothing in the world changes. Therefore, it is worth looking carefully at the second scenario, which the BRICS+ countries may be seeking to achieve. It is assumed that the metal is being bought in order to become independent of the US dollar.

Considering what might happen when central bank assets are deposited in currencies issued by other powers (i.e., watch the case of Russia, which the Fed and the ECB “requested” part of its foreign exchange reserves), countries associated with this group are preparing for emergency variables. They fear that if their reserves are accumulated mainly in dollars, they could be used as a weapon against them. That is why they focus on independent assets, such as gold.

The third scenario, which is very complex and difficult to imagine at the moment, is that perhaps – if the BRICS+ countries can buy so much royal crude – they will become completely independent of the dollar by introducing their own currency. For example, based on gold, it is more reliable and worth more than the dollar. However, the scenario in which the dollar is completely eliminated in the Global South is the least likely.

The US dollar seems to be the world’s leading currency for a long time – currently about 60% of all countries’ reserves are deposited in the “green” zone. The euro, which once aspired to compete with the dollar, accounts for only 20% of global reserves, and other currencies are quite marginal. For example, the Chinese yuan accounts for just over 2% of central banks’ foreign exchange reserves.

Read also the previous comment: Another All-Time Record for Gold Prices! How Could Gold React to Donald Trump’s Possible Election Victory?

A few words about the author: Michał Tekliński is a gold market expert with over ten years of experience in the industry. At Goldenmark, he served as Director of International Markets. He has traveled the world and seen it all (including the legendary jewelers’ carpets from which gold particles melt). At Goldsaver, he works as a lead analyst and a pillar of the expert team. On a personal level, he is an experienced observer of politics, geopolitics and economics.

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Check out the articles from the “You Can Buy Gold” series:

>>> For inexperienced investors, the safest strategy is to buy in chunks. This applies to stocks, bonds, and… gold too. Especially now. How to do it comfortably?

>>> Gold in the form of coins, bullion, ETFs, funds and company stocks? What are the advantages and disadvantages of investing money in physical metals?

>>> Buying gold is becoming more and more popular in Poland, so… the idea of ​​buying gold in pieces is back. Will gold bars end up in people’s homes this way? Is it safe? I’m testing

>>> What does the price of gold depend on? When will we benefit from investing part of our savings in it, and when not necessarily? Several factors will decide this

>>> Why do central banks buy gold? And should we too? Is gold becoming an alternative to “paper” money for bankers?

>>> Gold or real estate? This age-old debate has been stoking alternative investment advocates around the world for years. Who is more right?

>>> Gold as “insurance against the end of the world”? Not only. I check how gold performs in moments of market crises. Because we have enough crises

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invitation

We invite you to get acquainted with the offer of the Goldsaver store, a partner in the educational commercial chain ““You can buy gold” In “Myself About Finance”. At Goldsaver, anyone can buy gold bullion Piece by piece At your own pace and without commitment. Click ten linksCreate an account and buy gold in parts. At what price do you buy gold? At Goldsaver, it is always the price of gold at the National Bank of Poland plus 6.9% (storage, packaging, shipping costs and seller’s margin). In turn, the price of gold at the National Bank of Poland reflects the price from the London Metal Exchange.

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Goldsaver is a partner in the commercial education chain ““You can buy gold” In “Self-About Finance”. At Goldsaver, anyone can buy gold bullion piece by piece at their own pace and without any restrictions.

Image Credit: Image Steve Bidmead Z Pixabay