Throwing Gold BRICS At Broken Windows

THROWING GOLD BRICS

The latest salvo fired at the U.S. dollar by BRICS countries includes press reports about “creating an international precious metals exchange to ensure fair pricing and trade growth”. Russia’s finance minister, Anton Siluanov, announced that Russia is currently in talks with other BRICS members about such an exchange.

Previously, for several years, we have heard about a potential BRICS-sponsored currency or monetary unit, that would minimize the dominant role of the U.S. dollar with regard to international trade, and supplant or replace the dollar as a reserve currency. The attraction of an alternative to the U.S. dollar is hopefully enhanced and stimulated by incorporating gold ‘backing’ into any proposed formula.

WHAT IS BEHIND THE BRICS MOVEMENT?

To be quite frank, the motivation and driving forces behind BRICS are political and retaliatory in nature.  As the accepted voice of the BRICS countries, Russia speaks loudly and clearly about their displeasure and disenchantment with trade sanctions, the dominant role of the U.S. dollar, and the United States in general. In addition, Russia is unhappy about its failure to achieve global supremacy.

Throw in a freedom-hating China, which would like to see the Yuan replace the dollar and maybe control the gold market, plus a few other countries with their own axe to grind, and you wind up with BRICS (Brazil, Russia, India, China, South Africa, and the rest).

As a group, the countries that make up BRICS account for more than one-third (37%) of the global economy. BRICS has the potential to wield some clout, but tenuous and suspect relationships between and among the various member countries will tend to water down any “official” agreements and actions. (A similar negative, counterbalance exists within OPEC: a certain individual nation(s) acts contrary to the group’s expressed policies and desires, limiting the potential impact of embargoes and production quotas.)

The BRICS movement is not about gold. It is a politically-motivated, anti-U.S., and anti-dollar movement. Russia and China are more concerned about supremacy and control than about fostering a more reliable and stable currency. Using gold to further their efforts and accomplish their intentions is convenient. Otherwise, they would not go into trouble creating a charade known as BRICS and suggesting a gold-backed alternative to the U.S. dollar.

GOLD, BRICS, & THE GREAT RESET

The talk about a gold-backed international currency has gold bulls fantasizing about supernormal and unrealistic prices for gold. This has exacerbated negative sentiment and analysis about the U.S. dollar from those who might otherwise be less enthusiastic about “the coming collapse of the dollar” and the ushering in of the Great Reset.

The Great Reset is today’s best example of decades-old predictions about a ‘new’ currency to replace the ‘old’ dollar. It isn’t that there aren’t forces out there who are conspiring to bring about financial and economic upheaval en route to their goal of one-world government and global domination; there definitely are. The Great Reset is likely part of that secret cabal’s attempts to bring those evil designs to fruition.

However, in the gold sector, having tasted recently higher prices for their beloved yellow metal, investors and others are beating the drum loudly and vigorously about negative events that they think will send gold prices to the moon and make them rich.

Unfortunately, for them, their expectations for gold are not fundamentally sound.

REAL GOLD FUNDAMENTALS

The proclivity of reference to the demise of the U.S. dollar seems belated. The U.S. dollar has already lost more than 99% of its purchasing power since its destiny was entrusted to the Federal Reserve more than a century ago. At this stage of the game, though, there is no shortage of concerned individuals telling me how to protect myself against the coming collapse in the dollar. Don’t look now, but the collapse has already happened.

Yes, the U.S. dollar could lose an additional 99% of its current purchasing power. But, how long will it take? Another century? It took gold more than one hundred years to increase in price by one hundredfold. Is it supposed to do that again solely in anticipation of a further similar loss in the U.S. dollar?

Okay, let’s assume that there is a complete collapse in the U.S. dollar within the next year or two. Let’s further assume that gold reflects the collapse of the U.S. dollar by surging in price to $100,000 oz. What do you do?

Should you sell your gold and take your profits? A 50-fold increase in just a couple of years is fantastic, but…

If the U.S. dollar becomes totally worthless, and the gold price is measured in hundreds of thousands rather than hundreds and thousands, the dollar price of gold is meaningless. If nobody accepts dollars in trade because they are worthless, then you haven’t gained anything at all. What you have done is protect and preserve your purchasing power. 

After the events described above, you still have an ounce of gold. Gold’s value is in its use as money. An ounce of gold at $100,000 is no more valuable than an ounce of gold at $2000, or an ounce of gold at $20.67. It is all about purchasing power.

GOLD BACKING VS CONVERTIBILITY 

It is easy to say that a new currency will be backed by the gold holdings of the nations involved. It is also possible to verify that the gold is held by those same respective countries. However, without convertibility, there are no practical restraints on issuers of any new currency. Even with convertibility, the element of trust is of paramount importance. The U.S. dollar’s own history tells us that.

The U.S. dollar was once convertible into gold at a fixed ratio of $20.67 oz. Twenty U.S. paper dollars were exchangeable for one ounce of gold and vice-versa. As long as convertibility was available, the U.S. dollar could be considered “as good as gold”.

Active convertibility is a restraint on the government’s expansion of the money supply. If too many dollars are created, the government won’t be able to make the required exchanges on demand without losing more gold in exchange for paper dollars which continue to lose purchasing power. As the money and credit expansion continues, the dollars continue to lose purchasing power. This results in a preference to hold gold rather than dollars.

The redemption of dollars for gold increased and led to the suspension/cancellation of gold ownership for U.S. citizens by President Roosevelt in 1934. When President Nixon closed the gold window for redemptions by foreign governments in 1971, the U.S. dollar was left without any vestige of gold backing or convertibility.

Without convertibility, any new currency, even one with the pretense of being backed by gold, is just another empty promise and another substitute for real money, i.e., gold. 

CONCLUSION

Do you trust the governments of Russia and China, or any quasi-government authority to institute and maintain any proposed new currency (gold-backing or not) that would be a better alternative to the U.S. dollar? As bad as the dollar is, you aren’t going to get a better alternative from any of the BRICS countries. This is manifestly so, because…

Inflation is the debasement of money by the government. All governments inflate and destroy their own currencies.

In the case of the BRICS countries, the proposed new currency is a substitute for a substitute (U.S. dollar) for gold/real money. (Also see Gold Convertibility – NOT Gold Backing)