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July
11
2023

Breaking: New Gold-Backed Currency Launching August 22nd
Peter Reagan

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Russia announces gold-backed BRICS, Larry Lepard predicts total fiat failure by 2030 and Zoltan Pozsar’s take on the new monetary world order.

Russia announces BRICS gold-backed currency launch, 41 countries on the waiting list worldwide

Is it really happening? It’s the question we probably all find ourselves asking as RT announces that a BRICS currency is being rolled out by the corresponding countries, along with a gold standard to it.

Before delving into analytical takes, a few things are worth clearing up. The announcement isn’t yet official, but is rather scheduled to be made such in August in South Africa. Given that it’s only a month away and that RT is a state-backed outlet of Russia, it’s probably safe to assume it’s correct. In other words, if they were just trying to mess with the West, they would have picked a larger timeframe.

The more we examine Russia’s previous takes on a hard asset-backed currency, the more reluctance we encounter to tie it to gold. Russia would always mention oil alongside it, presumably since it has more of it than gold in comparison to its supposed allies.

But it seems decisions were made behind closed doors to indeed use gold as the backing for the BRICS currency, and in fairness, Russia wasn’t hesitant to point out that it would be “pointless” to create another free-floating currency. I couldn’t agree more – the world already has plenty of those.

RT also said that 41 countries have applied for BRICS membership. What this actually means isn’t clear, but I think it’s safe to assume members will have access to a SWIFT-like payment system to transact with their fellow nations Analysts have different takes on how much and how quickly this will resemble a currency akin to the gold-tethered U.S. dollar.

Thorsten Polleit, chief economist at Degussa, has previously said that re-tethering the U.S. dollar to gold might actually devalue the yellow metal, contrary to popular opinion. In the case of BRICS, though, he has other ideas:

Using gold as money, the unit of account would be a true game changer, no doubt about it. It could lead to a sharp devaluation of many fiat currencies… and it could catapult up goods prices in terms of fiat currencies. It could be a shock to the global fiat money system. I am not sure that this is what the BRICS wish to achieve.

But isn’t it? Polleit also notes that the effectiveness of the BRICS currency will depend on convertibility to gold. Among the more skeptical analysts is Marc Chandler, managing director of Bannockburn Global Forex, who says, “They [BRICS nations] do not have the gold to back a currency meaningfully.”

Horsefeathers. Combined, the official gold reserves of the BRICS nations are the second-largest in the world (second only, ironically, to the U.S. gold reserve). Unofficially? We’ve previously covered speculations that both Russia and China are sitting on 20,000 tons of gold each, under-reporting their purchases and holdings massively. India’s citizens own 25,000 tons of gold which, theoretically, could be nationalized in a Roosevelt-esque move…

Today, the official BRICS gold reserve approximates the U.S. gold reserve during the Roaring 20s (yes, during the days of the American gold standard). If a gold standard was feasible then, with that quantity of gold, how is it unfeasible today?

Instead of speculating about the minimum amount of gold required to launch a viable gold-backed currency, I think it’s more useful to think through the consequences to the dollar.

More alarming, perhaps, as well as more useful. And that’s what’s on Larry Lepard’s mind…

Larry Lepard: Don’t worry about gold, worry about the future of unbacked currencies

Larry Lepard, investment manager and managing partner at EMA, joins Investing News Network in what is a truly comprehensive overview of where gold and fiat currencies currently stand. The interview, over an hour long, is worth the watch as it covers practically everything pertaining to the markets, but we’ll try to cover the most relevant bits.

Lepard is explaining how the U.S. is setting an example of sorts by putting forth the question: do debts need to be paid? Yours and ours do. We’re used to an economic reality where debts are paid or there are consequences. But that doesn’t seem to be the case for the U.S., which has postponed the debt conversation until 2025. By then, Lepard estimates the debt to be $36 trillion.

During Trump’s Presidential run, he expressed concerns over the debt reaching $24 trillion as economists called it “a point of no return”. That was just seven years ago. It seems we’re approaching a point, if not there already, where nobody expects the U.S. to pay or even reduce its debt anymore. True Modern Monetary Theory, which must be accompanied by complete destruction of purchasing power of fiat currencies.

Interestingly, Lepard thinks total fiat failure could happen seven years from now, or in 2030. While everyone cites examples of the Weimar Republic and Venezuela, and these days Argentina and Turkey, Lepard uses a less common one in the form of the Soviet Union. As he says: “It was a big, powerful, scary thing until it wasn’t.” He likens the collapse of the Soviet Union to the possible collapse of the U.S. dollar hegemony. And it’s an apt comparison because, as we pointed out recently, a superpower doesn’t need to be wiped off the Earth to stop being that. After the Soviet Union collapsed, Russia continued on with its business. It just wasn’t taken that seriously anymore.

These collapses, explains Lepard, happen quickly and all the more so in today’s age of instant media. We already have all the Venezuela/Turkey/Weimar Republic elements in play in the form of rampant deficit spending and high inflation with no real vision of a return to sound money and economic strength. All it takes is a trigger for people to start getting out of the U.S. dollar en masse, one way or another.

How and what this will be remains unclear, but Lepard thinks de-dollarization is already ongoing. He views $2,100 as an almost insignificant price target for gold compared to $3,000, which he thinks will follow very quickly in the wake of formal mentions of quantitative easing. Besides gold, Lepard is also bullish on both silver and bitcoin, saying they’re important assets to hold in this landscape.

Ronald Stoeferle hosts an in-depth panel on the changing monetary order

Ronald Stoeferle, among other things known for his accurate gold forecasts, recently hosted a podcast where he was joined by financial journalist Niko Jilch and Zoltan Pozsar, who has sort of become a trending name in finance these days. The theme? Pozsar calls it the “new monetary world order,” and how the U.S. dollar and gold fit into it.

The first thing to address from their conversation is probably the notion that we can go back to low inflation, which none of the participants think possible. Pozsar goes as far to call 2% inflation “going back to the old world”. Tough times for the consumer. Pozsar explains how Paul Volcker’s formula to fight inflation was just as extreme as it was fortunate to have worked, specifically compared to current times.

Merely hiking interest rates to restore the U.S. dollar right now won’t cut it, notes Pozsar. Compared to then, oil is a tight market made all the more so due to geopolitics. The early 1970s had its own oil squeeze, but it was remedied quickly with investments that actually made oil abundant, which Pozsar doesn’t really believe can happen now. And since expensive oil means expensive energy, it’s guaranteed to continue worsening the inflationary problem.

Labor is the other big difference from back then, says Pozsar, and it’s another tight market. As the three got into how China might look to take the dollar’s place, but through the yuan instead of the BRICS currency, Pozsar also touched upon gold. He says a 20% commodity allocation will become standard for any investor, with a notable mention:

Within that commodities basket, I think gold is going to have a very special meaning, simply because gold is coming back as a reserve asset and as a settlement medium for interstate capital flows.

That last bit, “settlement medium for interstate capital flows,” that’s exactly what the BRICS nations are planning. Nations that aren’t members of the BRICS league will still have the option of paying for their Russian oil, or Chinese manufactured goods, or Brazilian soybeans or South African coal or Indian pharmaceuticals with gold. (Maybe the BRICS will even insist on payment in gold?)

 

 

Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.

 

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