(Kitco News) - Last week, we warned investors that gold’s selloff was an overreaction to misunderstood fundamental news.
Blackbox (algorithmic trading) gold traders, who have been relying on Chinese central bank buying, were spooked when data from the People’s Bank of China showed that it didn’t increase its reserves last month, ending an 18-month shopping spree.
Gold managed to hold critical support at $2,300 on Monday and is seeing a 1% gain on the week heading into the weekend.
This week, I attended the 30th annual Montreal Conference of the International Economic Forum of the Americas, which helped me better understand the growing trend of deglobalization.
“It’s extraordinary to me to see how rapidly we've moved from a situation where globalization seemed inevitable to where today it increasingly seems impossible,” said Perrin Beatty, a former Progressive Conservative Cabinet Minister and President and CEO of the Canadian Chamber of Commerce, during a panel discussion.
While the U.S. dollar is expected to remain the world’s reserve currency, it will face growing competition.
Analysts constantly reiterate that gold will play a growing role in a multipolar currency world because it remains one of the most liquid monetary assets in global financial markets.
We can already see the U.S. dollar’s diminished role on the world stage. This week, the trade agreement between the U.S. and Saudi Arabia, which established the petrodollar, was allowed to expire.
For the past 50 years, the U.S. dollar has dominated global trade as the two nations agreed to price oil in U.S. dollars. This agreement cemented the dollar as the world’s reserve currency and ushered in an era of prosperity for
Americans; in exchange, the U.S. provided military support and protection to the kingdom.
Saudi Arabia’s moves to expand beyond the USD come as it enters a new trading bloc with expanded BRICS nations: Brazil, Russia, India, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates.
During the Montreal conference, Ali Borhani, Managing Director of 3Sixty Strategic Advisors Ltd and co-founder and host of the BRI Dialogues, put the expanded trading bloc into perspective and noted that people have to recognize that the world has changed.
“Half of the world population is in BRICS+. Two-thirds of world trade happens in BRICS+. BRICS are adding 74 million consumers a year. That is two times Canada out of these markets,” Borhani said during the panel discussion.
“The largest buyers of energy and the largest sellers of energy happen to be in the Global South and among BRICS. So we're looking at the rewiring of energy, finance, supply chain, and tech.”
Because of these broad-reaching geopolitical shifts, it is fairly easy to make a simple case for gold as a global currency. Many analysts have noted that gold remains the best neutral asset to settle trade imbalances.
So it's not just China that is going to have to buy more gold; nations around the world, especially those in emerging markets that have relied so heavily on the U.S. dollar, will have to rebuild their gold reserves.
That is it for this week. Have a great weekend.
