Credit: Kitco

In an analysis for intelligence consultancy GIS published Wednesday, Roth noted that gold’s surge to a new all-time high of $2,480 per ounce on July 17 underscores strategic moves by central banks in BRICS+ and other countries against a backdrop of geopolitical and economic uncertainty.

Roth said that the demand fueling these new record highs was coming from somewhere other than consumers and investors. “Central bank purchases have been a key driver of gold’s price surge, which is interesting in and of itself, given the general disdain that so many central bank officials and policymakers have historically shown towards the metal,” he said.

He cited the latest World Gold Council data which shows that the most active sovereign purchasers in Q1 2024 were “the People’s Bank of China, which added 27 tons to its gold reserves; the Central Bank of Turkey, which increased its holdings by over 30 tons; the Reserve Bank of India, which bought 19 tons; and the National Bank of Kazakhstan, which added 16 tons.”

“This voracious buying didn’t just come out of nowhere. China has been expanding its reserves with fresh purchases every single month since October 2022, pausing only this spring, and it is expected to resume as soon as price levels pull back.” He noted that Russia also aggressively increasing its gold reserves, with the yellow metal now representing over 29% of the country’s total reserves, a massive increase from 11.8% just six years ago. “Other nations within the Sino-Russian sphere of influence, and even some that are generally perceived as neutral, also began their gold stockpiling efforts around the same time,” he said.

Roth believes gold’s rise is primarily a reaction to the weaponization of the U.S. dollar. “The world reserve currency, the anchor, the stabilizer and the trusted medium of exchange that countless countries rely upon, can and will be used as an offensive weapon in geopolitical conflicts,” he wrote. “That same weapon that has been wielded against Russia could be deployed against any other adversary.”

The rise and expansion of BRICS+ has also played a role, Roth noted. “The grouping has been advocating for a more multipolar world order, and its founding members have aired the idea of launching a gold-backed currency,” he said. “No matter how one assesses the realistic prospects of such a currency and its potential real-world impact, and despite the fact that BRICS+ is a rather loose alliance (compared to the European Union, for instance), the fact remains that the group encompasses about 3.5 billion people or 45 percent of the global population, controls 30 percent of the world’s land surface, and its members’ economies account for over 37 percent of global GDP.”

Roth shared three de-dollarization scenarios and their potential impact on gold:

In the first scenario, non-Western gold purchases will continue. Roth considers this outcome “Very likely.” “What seems entirely likely is that gold demand from BRICS+ members and non-U.S. aligned nations will continue to outstrip Western purchases,” he wrote. “An outcome of this will be drift in the center of geopolitical gravity.”

The second scenario, which Roth believes is possible in the long term, is that gold-backed economies dethrone the U.S. dollar. “As more nations accumulate more gold and slowly reduce their dependency on the U.S. dollar, the West’s geopolitical influence will inevitably grow weaker,” he wrote. “As a result, the U.S. and its allies will have fewer levers at their disposal to enforce their global agenda. Eventually, they will be less and less able to protect their interests.”

The third and least likely possibility in Roth’s estimation is the complete de-dollarization of the Global South.

“Gold is the only workable and viable alternative to the American currency,” he concluded. “A widely accepted and reliable gold-backed currency, like the one that China and Russia have advocated for, certainly seems like an unlikely scenario – though it is not inconceivable. Highly improbable as it may be, should it come to pass, it would irrefutably mark the beginning of the end of the era of fiat currencies.”

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