Lula Hoops
For gold bugs—and probably for a few big-name global leaders—Kazan underwhelmed.
“A mask of gold hides all deformities.” – Thomas Dekker
The past five years have marked an unsettlingly impressive bull run for gold. The hardest money has kept pace with the booming S&P 500 index, even besting that important benchmark by more than 11 points thus far this year. It currently sits at or near all-time highs in the major currencies. The number of US dollars required to buy an ounce of the stuff has increased by a factor of almost 80 since Nixon closed the gold window.
As we said, unsettling.
Gold aficionados—ourselves among them—speculated that a driving force behind the move higher was its accumulation by global central bankers ahead of developing alternatives to the current US-dollar-dominated international payment system. Presumably, gold would once again serve as a neutral reserve asset in whatever new arrangement emerged. Here’s how the Jerusalem Post framed the market chatter:
“Rumors have swirled around the potential unveiling of a BRICS economic alliance currency, thought to be called ‘the unit,’ that will put further pressure on the U.S. dollar amid rising de-dollarization efforts from countries looking to increase economic sovereignty. It’s hardly the first time America’s adversaries have attempted to knock the U.S. dollar away from its status as the world’s reserve currency, however, this time BRICS is receiving enough global interest to potentially make their efforts a reality….
Reports have since suggested the potential new BRICS currency will be 40% backed by gold and 60% backed by reserves in member currencies. Meanwhile, reserve banks across the globe have added large amounts of gold to their coffers in recent years, further fueling speculation of a new gold-backed currency.”
This was all meant to come to a head at the recently concluded BRICS summit in Kazan, Russia. Russian President Vladimir Putin, leader of the most sanctioned country on earth and the current year’s BRICS President, had undoubtedly been working tirelessly behind the scenes to set up a means to circumvent the power of the dollar.
In the weeks leading up to the meeting, we developed a hunch that things might not be going according to Putin’s plan. In a controversial piece published in late September, “Neighborhood Watch,” we speculated that Brazilian President Luiz Inácio Lula da Silva (Lula) might play the role of unexpected spoiler, doing the collective West’s bidding while feigning support for the breakaway initiative:
“As the largest oil producer in Latin America and with the China-Brazil trade relationship approaching $100 billion, occasional hints that his loyalty might lie with US interests are dismissed as the natural behavior of a crafty politician carefully threading the needle among the global superpowers.
But what if this isn’t so? If the table is truly set for a decisive move away from the US dollar in Kazan, might the unexpected, last-minute loss of Brazil’s support for the initiative be its undoing?”
While admittedly more speculative than our typical missives, the piece provoked a surprisingly strong pushback, with several subscribers lamenting our newfound fondness for tin foil. We are always happy to receive such feedback, especially because it is a form of metadata that is itself useful. The Kazan summit has come and gone, opening an opportunity to appraise whether we were on to something. Let’s shake out the receipts and ponder what it could mean for gold.