Today, the highly anticipated BRICS summit is underway and investors across the globe are expected to tune in for comments from the participating heads of state, since the coalition is rumoured to announce the launch of a gold-backed currency for transaction settlement between its members. The bullion has been on the retreat since the start of the month and has recently eased to levels once seen before in March of 2023, as the rise in bond yields to 16-year highs and the relative strengthening of the greenback, dampen the shine of the precious metal. In this report we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis.
BRICS summit: Overview, agenda and rumours
The summit takes place in South Africa, from August 22nd until the 24th and the heads of the participating nations will come together and announce the alliance’s future plans. BRICS is an acronym denoting the emerging economies of Brazil, Russia, India, China and South Africa and in a nutshell, it is an economic alliance that seeks to counter the West’s hegemony in a growing multipolar world. The heads of state will convene today, with the exception of Russian President Vladimir Putin, and on the agenda there are topics ranging from global geopolitical interactions, trade and infrastructure development, alongside more practical matters such as admission requirements for interested nations.
The alliance has attracted interest from the likes of numerous countries that feel underrepresented and outright dismissed by the traditional G7 status quo powers of the West, and are eager at joining forces with the emerging powers of the so-called global South, who seek to counter and reduce their dollar reliance.
The group has now reportedly received applications from over 22 countries and a total of 40 nations have expressed their interest in admission in the alliance. Examples of applicants include Saudi Arabia, Iran, Egypt and Indonesia alongside numerous African countries.
According to statistical assessments, the existing members’ contribution to the global GDP share is approximately 27%, they roughly account for 1/4 of global trade and their respective population amounts to nearly 40% of the globe who seek a “louder” representation voice in international matters, as well as access to financial development benefits, which are not offered by the West due failure to meet certain criteria.
The New Development Bank, an alternative organization to the World Bank and the IMF, has been set up nearly 7 years ago to manifest the interests of the bloc by promoting a more multipolar financial system, that facilitates payments and trade with local currencies such as Yuan, Rupee and other currencies rather than circumvent payments by using the dollar.
The head of the NDB Dilma Rousseff, stated that “local currencies are not alternatives to the dollar, they’re alternatives to a system. So far, the system has been unipolar… it’s going to be substituted by a more multipolar system”. In a sense, the aim of the bank is to lend in local currency that would allow borrowers in member countries to avoid exchange rate risk and variations in US interest rates.
The move to reduce exposure from the world’s reserve currency and settle transactions via other routes certainly creates worries for the dollar’s longstanding superiority and could be perceived as a threat by Western nations, which may retaliate by cutting off entirely these nations from their existing payments systems, much like they acted with Russia by kicking it off the SWIFT payment system at the wake of the invasion in Ukraine.
Furthermore, there have been rumours circulating the market since the start of the year, that the bloc has plans to introduce a settlement currency that will be backed by gold solely or a bundle of precious metals such as gold, silver, copper and others, but no official comments have been made by the organization. It would be interesting to see any commentary on this since it can have a material impact on the valuation of the bullion. Shall we see an announcement of such nature, we would reasonably expect the precious to receive inflows mainly of the prospect of payment facilitation and the need from central banks of these nations attempting to revamp their gold holdings.
Finally, reverting towards the gold standard and backing the bloc’s currency with a physical, tangible commodity could also pose a threat to fiat currencies, whose devaluation over the decades has been aggravated by systematic quantitative easing policies. Thus, we also flag the risk of a possible rise in volatility in the FX market, with particular emphasis placed on the greenback, which given this scenario, shall be expected to face deterioration.
Análise técnica
XAUUSD H4 Chart
- Support: 1885 (S1), 1858 (S2), 1807 (S3)
- Resistance: 1945 (R1), 1885 (R2), 2020 (R3)
Looking at XAUUSD Daily Chart we observe gold’s slide since the start of August and the formation of a death cross on the 8th of August which led to its steady gradual fall below the $1900 key psychological level, where it found temporary support at the start of this week. We hold a neutral outlook for the commodity, however, we would like to point out the criteria that will force us to switch our assessment towards the bullish end.
In order to shift our assessment we would require seeing the definitive break above the upper bound of the descending channel and the break of the 12 EMA line, and gold steering away from the $1885 (S1) support base. Furthermore, we would like to see the break of the MACD line above the signal line, below our daily chart, which will confirm the shift in momentum, giving us confidence that a reversal or a rebound is in the making.
Also, validation from a rising RSI-based MA near the 50 level and above will also be desirable. Shall the aforementioned criteria be fulfilled, then we set a TP target for the $1945 (R1) resistance level and subsequently the $1985 (R2) level, and shall the momentum strengthen considerably.
Should however, we see the bears continue to dominate and stir the bullion’s direction, we would expect the price to fall back towards the $1885 (S1) support base (SL target) and should the momentum intensify, we would expect the precious to find support near the $1858 (S2) support base.
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