Gold BRICS in demand

The sanctions on Russia, which froze almost half of their $540 billion gold and foreign exchange reserves, have other nations seeing a dangerous precedent. As a growing number repatriate their reserves and buy at a historic pace, Russia has announced plans to create a new currency backed by the gold standard. 

The annual Invesco Global Sovereign Asset Management Study showed the number of central banks keeping reserves within their borders had risen to 68 per cent, compared to only half in 2020, a widely held view according to Invesco head of official institutions Rod Ringrow. 

 “If it’s my gold then I want it in my country has been the mantra we have seen in the last year or so,” Mr Ringrow said. 

And as tensions with the U.S. grew and nations took their reserves out of London, Moscow called for a new gold-backed currency. 

The Russian Embassy in Kenya first declared that the BRICS nations, Brazil, Russia, India, China, and South Africa, were planning to introduce the new currency and challenge the dominance of the U.S. dollar, later confirmed by government-backed news network R.T. 

The BRICS bank headquartered in Shanghai, the New Development Bank, has previously stated that while it is not yet ready to challenge the global dollar dominance, it remains a medium to long-term ambition. 

But the intent has been shown, and China and India have been prominent among the central banks which have been buying gold at a historic pace since mid-2022, collectively purchasing a net 125 tonnes of gold, the highest amount for a year-to-date period since they became net buyers in 2010. 

The invasion of Ukraine has served as a stark reminder of the realities of geopolitical unrest, and as the West focuses on critical minerals, a growing number outside are seeing gold as a vital resource of their own. 

A cautious approach

While a gold price dampened by interest rate rises has not shattered all-time highs as predicted by the bulls, the S&P 10-Year Treasury Futures and the bond market continues to point towards lower rates ahead despite indications made by the Federal Reserve. 

The gold price remains robust and has yet to dip low enough to tempt a surge of physical investors. While the U.S. Mint has seen a sharp dip in sales, its Perth-based counterpart saw improved sales through June and reports strong growth compared to 2022. 

Even at a price well above US$1900, Neil Vance, General Manager of Minted Products at the Perth Mint, said a steady price slide over the last month had presented a buying opportunity for clients. 

“The current strength of interest was reflected in the fact that ounces sold were 12% ahead of June 2022,” Mr Vance said. 

Analyst Nigel Green of the deVere Group, one of the world’s largest independent international financial consultancies, said Consumer Price Index data had raised hope that the Federal Reserve was going to be able to bring down inflation without bringing the U.S. economy into recession, suggesting better near-term demand for commodities. 

“The battle on rising prices is being won, as the data suggests, meaning the pressure is off the Fed for future rate hikes. Cooling inflation and a strong and resilient labour market suggest that no recession will come in 2023,” Mr Green said. 

Gold investors appear to be waiting to see if the Federal Reserve go through with its indications for more rate hikes, and if there is a clear signal from the central bank that interest rates have reached their peak, it could trigger another golden bull. 

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