However, despite these major headwinds not least surging real yields, gold is showing signs of stabilizing with the recent bid being supported by a softer dollar and rising silver prices amid higher industrial metal prices on continued speculation China will have to do more stimulus. In addition, investors may also be contemplating the risk of Powell doing a 180 in his speech on Friday at Jackson Hole, basically saying the Fed is done. While it's very unlikely the risk of such a move could be enough to sway a few short positions.
BRICS summit kicks off today
It is also worth mentioning the BRICS meeting, starting today, with Brazil, Russia, India, China and South Africa. The agenda is expected to center around the group’s expansion, with some 40 other nations lining up to join including Indonesia, Saudi Arabia, Argentina and Egypt. This could mean internal conflict as South Africa seems open to the idea, but Brazil is worried about its influence getting diluted. Meanwhile, Russia is attempting to ward off currency pressures at home and Xi is trying to find the most appropriate response to pressures on China’s property sector and economy at large.
But a larger group could mean more opposition to the West and a larger pursuit against the dominance of the dollar. This could, however, be positive for gold which acts as an alternate store of value and central banks continue to ramp up gold purchases in order to hedge against the dollar. Ahead of today’s meeting there has been increased talk of the BRICS nations developing a new reserved currency, potentially backed by gold, that could rival the US dollar as the global reserve standard. Many countries are seeking greater independence from the US financial system in response to continued weaponization of the dollar in the form of sanctions and trade wars.
With the dollar currently being used in 84% of cross-border trade, the potential for a successful alternative remains very low, and with that in mind gold remains the best option for central banks in need of reducing their exposure to hard currencies like the dollar, and such demand will likely continue to provide a soft floor underneath the gold market.