Gold, BRICS, and What’s Next...

A quick review from last year. [The Rude Awakening] August 23, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Gold, BRICS, and What’s Next… - If we’re suffering - the correct verb - from inflation, why isn’t gold rallying? - As usual, it’s the Fed’s fault.Rising yields hurt commodity prices. - When should you buy gold?Let’s attempt an intelligent guess. [External Advertisement] [I only trade ONE stock & I NEVER worry about..."]( [Click here to learn more]( The name of the ONE stock (ticker symbol and all) that has helped over 170,000 people discover how to gain their financial freedom... [Learn More.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from cool Brussels. I was going to write about traveling, but I’ll leave that until I’ve had some rest this weekend. As the BRICS countries get together in South Africa, this is the perfect article to reprint while on holiday. And, what’s more, it comes from you. To wit… Rude reader Damon wrote in with another stimulating question just as I was running out of ideas for the end of the week. He writes: Although gold went up a little on crypto woes, it still seems unreasonably low given the market. Is this due to false enthusiasm on the inflation/recession front, or perhaps Russia and China are now using their stockpiles to avoid US Dollar sanctions, and flooding the market? On a similar note, what is the current situation on the alignment of Russia, China, India, Brazil, Iran, et al., to create an alternate banking exchange and break US control of “petrodollars”? My frustrations are Damon’s frustrations. I will break down his query into smaller questions and address each. But first, we’ll do a tiny bit of theory. The Theoretical Price of a Commodity Hedging with futures simply means “taking the opposite of your physical position.” Let’s say I’m Cadbury’s chocolate bar maker. I need cocoa to make my chocolate. There are two smart ways to acquire that cocoa, as I’m worried prices will rise. I can buy the cocoa now and store it. Or I can buy a 3-month cocoa future. (I don’t want to wait three months to buy it because of the price risk I’d incur.) Theoretically, both alternatives should cost the same amount. Why? If I buy the cocoa now, I’ll have to pay the cash price immediately, plus storage and insurance costs and any foregone interest I’d have earned by keeping the money in the bank. If I buy a three-month cocoa future, someone else will do precisely the same, not for free! They’d charge me the same amount: cash plus storage, insurance, and foregone interest. Using simple mathematics, the cash price, or present value adjusted for costs over time - that is, we put our costs in the “r” - gives me my future value. PV x (1 + r) t = FV If we rearrange the equation to figure out our cash price, we get the following: PV = FV / (1 + r) t Looking at this formula, it’s easy to see if rates, the “r,” increases, then the price or “PV” will decrease. Another word for rate is yield. That means our rate will be derived from the corresponding yield in the market. And what has Chairman Pow done to our yields? Raised them like a madman! As those yields go up, any asset valued this way will fall. Let’s face it: most assets are priced this way. [Pentagon City “BOMBSHELL” Just Dropped]( There are two things I believe could change your life in the coming months. - A major financial war could be set to go nuclear just a few weeks from now - A [special strategy]( my team has developed that historically could have allowed investors to take home profits 50-100 higher from these Currency Wars than what most people get trading stocks But with these Currency Wars playing out as we speak, and my live recording set to come down at any moment. You may not have long to prepare. [So click here to see an urgent rebroadcast of my announcement.]( [Click Here To Learn More]( Using Real Estate to See Why the Fed Hikes Hurt Gold An oversimple way to value a real estate investment is to take the Net Operating Income and divide it by the capitalization rate. That will give you an idea of how much a piece of property is worth. NOI / r = property value It looks like our futures equation, but the denominator differs because we assume perpetual cash flows. (That is, the building doesn’t collapse or deteriorate to the point of disuse. As I said, it’s oversimplified.) I show you this because [Jeroen Blokland on LinkedIn]( presented the below chart: [6-month US Treasuries are way less risky than real estate] He writes: The chart [above] is from Nicholas Gerli, founder of Reventure Consulting. It shows that the 6-month US Treasury offers more yield than the ‘average’ real estate investment. Adding the fact that 6-month US Treasuries are way less risky than real estate investments, the former brings the superior investment alternative. If you can earn a higher yield in government securities than by managing property, why would you own property? Likewise, if you can earn a good yield in government securities, why would you own an asset that doesn’t produce income, like gold? And this is why gold isn’t rallying to the moon. The Fed has made it better to stick your money in Treasuries. The Same Applies to Bitcoin Now, if you bought your gold at $252/oz when that imbecile Gordon Brown announced the Bank of England was selling its gold holdings, you’re still money good. You're still laughing if you bought your Bitcoin for under $100. After all, you’d be up at least 160x. The point is you needed to be in early to have made any money. But to get in now is to take an enormous risk. When Should You Load Up on Gold? I agree with my friend and colleague Dan Amoss. When the Fed pivots and genuinely starts to cut rates, back up the truck. As the “r” gets smaller, the PV (or price) will rise. All moves up before that will be reversed. Chairman Pow must relent on his hiking strategy before we see the real rally in gold. [10-year yield minus the 3-year yield] This chart above is the 10-year yield minus the 3-year yield. When this turns positive again may be the starting gun on a gold rally. Russia, China, and the BRICs Here are the top 10 Countries with the largest gold reserves (in tons): - United States — 8,133 - Germany — 3,359 - Italy — 2,452 - France — 2,436 - Russia — 2,299 - China — 1,948 - Switzerland — 1,040 - Japan — 846 - India — 754 - Netherlands — 612 It’s improbable that Russia and China are selling any of their gold. In fact, I’d say they were acquiring large amounts of the barbaric relic. Since the beginning of the Russia-Ukraine War, the West has barred Russia from selling its gold. That doesn’t mean Russia has complied, of course. But I don’t think Russia is the marginal seller bringing down the gold price. Gold just isn’t attractive with yields where they are right now. As for the petrodollar, its days are numbered. Here are Saudi Arabia’s most significant oil buyers: [pub] Credit: [OEC]( The United States matters but isn’t the biggest buyer by a long shot. We know the Saudis work with the Russians through OPEC+ to keep oil prices high. And its largest oil buyer is China. The world will look very different over the next ten years as the BRICs fully emerge as a power bloc. Wrap Up A big thanks to Damon for his thought-provoking question. Alas, a conspiracy isn’t holding the gold price down. A privately owned cartel is. That’s the Federal Reserve. But this story will end… with a pivot. When this story ends is a mystery. But when the Fed pivots, back up the truck and load it with gold. But not before. In the meantime, have a wonderful Wednesday! You deserve it! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( In Case You Missed It… Four Real Asset Picks From Byron King! [Sean Ring] SEAN RING Happy Tuesday! I never let a chance to showcase Byron King’s excellent work in the Rude go by. He’s the best in the business when it comes to metals and mining. And I love to read his incredibly informative stuff, not just for the picks and advice but for his excellent storytelling ability. Have fun with this one, and see if one of these plays works for you. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Secret Gold Back currency RUINING Biden’s plans for a digital dollar?]( [Click here to learn more]( [Ever heard of America’s “Doomsday Deal”?]( What you see here is a completely new form of money… As we speak, it's being used as an alternative currency across the U.S. minting in places like Utah, New Hampshire and Nevada… And since it’s made out of a thinly printed sheet of REAL gold... It may be the single best way to protect your wealth from Biden’s plan for a government controlled digital dollar. That’s why, we'd like to offer to send one to you today. But since there are a limited number, I need you to respond to [this message]( by Wednesday at midnight. [Watch this short 2 minute message that explains everything here.]( [Click Here To Learn More]( [Byron King] BYRON KING In this article, we’ll discuss mining, metals, and how to use hard assets – aka “real things” – to preserve wealth in a fast-changing world where the dollar's value is shrinking. But first, I want to tell you what happened in the Minneapolis airport as I passed through on a flight from Vancouver during the return leg of a trip to Canada. “Nobody Goes to Eritrea.” I stopped at a newsstand to buy… yes… a newspaper. The checkout clerk was a not-quite middle-aged woman, dark-complected. She wore a name tag that said “Kotb.” She was friendly and very courteous. On my end, I like to reinforce habits of friendliness and courtesy. So, to make conversation, I said, “Kotb, that’s a nice name. In Arabic, doesn’t it mean something like straight and pure, like the northern direction of the pole star?” She smiled and said, “Yes, not too many people know that. Have you been to the Middle East? I am from Eritrea.” To which I replied, “I’ve spent some time over there. In fact, I’ve actually been to Eritrea.” At this point, Kotb looked at me skeptically, tilted her head back, and said, “No. Nobody goes to Eritrea.” And I said, “Oh yeah? I have my passport, and I can show you a visa, issued by no less than the Eritrean embassy in Washington.” At this point, I reached into a pocket and pulled out the documentation. Kotb looked at the visa, with its fancy writing and decorative printing, then looked at me and said, “Oh, you must be in the mining business. Because nobody else ever goes to Eritrea.” I suspect that Kotb was correct. Few outsiders travel to Eritrea, certainly not many Westerners, because the place is not exactly on the tourist circuit. Nor is traveling to Eritrea convenient. Indeed, just to get to the capital city of Asmara, I had to fly out of Doha, Qatar, then track southwest over Saudi Arabia and the Red Sea. [Qatar Airways en route map of flight to Asmara, Eritrea.] BWK photo. And as I mentioned above, and still, as far as I know, you need a hard-to-get visa to enter Eritrea, which typically requires a sponsor, such as a mining company, to vouch for you. A Long Wait and the Struggle for Prosperity Eritrea is an ancient land. Anthropologists have discovered humanoid remains there, which date back about a million years. More recently, it was an Italian colony from the 1870s onwards. In the leadup to World War II, it served as the staging point for Mussolini’s invasion of Ethiopia in 1935. The British army wrecked much of the country during the war. This wreckage included a key east-west railway from the Red Sea coast to the country’s interior, an artery of commerce almost crossing the Sudan border. Postwar, Eritrea was unwillingly (if not forcibly) annexed to Ethiopia. Sad to say, the southern neighbor behaved like an overbearing, exploitative colonial master rather than a cooperative partner in a national federation. Before long, Ethiopian corruption and misgovernance led to Eritrean resistance, which transformed into a festering war from the 1960s to the 1990s. Among other things, the long conflict left armored relics littered across the landscape. [Wrecked Ethiopian tank from the days of war. BWK photo] Wrecked Ethiopian tank from the days of war. BWK photo Even today, Eritrea still has not resolved its border disputes with Ethiopia. While overall, the nation remains quite poor, although it hosts several mining ventures; I visited two projects while I was there. And as is the case with many emerging and developing countries across the globe, the political and economic struggle continues. When the West Doesn’t Hear You, Turn East. Right now, it’s fair to say that the struggle of Eritrea, and many other countries in similar straits, has distilled into a potent collective, geopolitical movement that affects us all, or will in the near- term, meaning probably this year. Along these lines, recall what’s happening with the BRICS nations; Brazil, Russia, India, China, and South Africa, which Jim described in a deep-dive discussion in the June issue of Strategic Intelligence. This organization will meet in South Africa towards the end of August, and it’s more than clear that we should expect important developments. Among anticipated outcomes, we’ll likely see a move to expand BRICS membership to include many more nations. These countries will join BRICS and add significant numbers of people, land areas, natural resources, geographic positions, economic outputs, and much else. For example, expect Saudi Arabia, one of the world’s three largest oil-producing nations, to become a formal member of BRICS. So, at the very least, BRICS will become larger and, in all ways, a more significant player in the world scene. Then there’s the issue of a BRICS currency unit, a means for nations and trading blocs to untether from the shackles of the U.S. dollar, the euro, and/or British pound. Likely, this won’t be an instant development. Don’t expect to see an overnight, competing, gold-backed unit of money. But we can expect to see the outlines of a future mechanism for world trade to evolve away from the use of Western currency, let alone Western banks or bankers. With this in mind, consider what the president of Eritrea, Isaias Afwerki, recently said at a major conference in St. Petersburg, Russia, before a gathering of almost all heads of state from the African continent: The West (meaning the U.S. and European Union) “is printing money. They are not manufacturing anything at all; it is all about printing money. And this is one of their weapons. The global monetary system is controlled by the dollar, and the euro is being used. They are introducing sanctions and freezing accounts – these are their tools. This is not going to continue indefinitely. We need a new financial architecture, globally, one that is not controlled by the euro, the dollar, or other currencies.” This commentary reflects a school of thought that’s quite common across the emerging and developing world. That is, many people and governments want a “new financial architecture.” In this sense, it’s fair to say that Mr. Afwerki is not alone in his anti-Western sentiments, particularly as they pertain to dollar or euro hegemony, because the leaders of many other nations have expressed similar views. And consider the evident disdain in Afwerki’s comment about how the West is “not manufacturing anything at all.” Well, that’s inaccurate because the West manufactures quite a bit of almost everything, and many of those goods include high levels of technology. I mean, aerospace, computers, and medical devices speak for themselves. But the man’s comments reflect a sense of long-term political and social frustration within developing nations; that is, of their appeals to the West that rebound and create a sense of not being heard, or worse, ignored, exploited, and disrespected. The raw history is that for the entire postwar period (meaning the Second World War, which ended in 1945), most emerging nations have been a source of energy, minerals, and commodity agricultural products for the developed world and not much else unless they also served as tourist destinations. And guess what? These long-suffering, post-colonial emerging nations know it and are now in a position to do something about it. The Looming Reboot of Cultural and Political Forces All in all, the world is on the cusp of a reboot – a realignment, one might say – of cultural and political-economic forces. The current ossified global situation, all tied together with Western currency and banking, is about to change in a big way, and BRICS will serve, in a metaphorical sense, as a geopolitical icebreaker. That is, the new, expanded BRICS entity will clear a path for its members and the rest of the world to move up the development ladder. Think of the possible future of Africa, with a large whack of South and Central America as well. Or look at it this way. In the past, when underdeveloped nations produced something – minerals, energy products, agriculture goods, or some other commodity-type item – the output was always priced in dollars, usually with the number set on one or another exchange in London, New York, or other Western venues. And the producing nation could take it or leave it. But with the new BRICS approach to international trade and using that organization’s version of a currency unit, many goods produced in a developing nation will find price levels that are far more independent of Western manipulation. That’s the idea, anyhow. Meanwhile, with a BRICS unit in effect to facilitate trade, more and more of present-day world commerce will not require dollars to set prices, let alone to buy or sell stuff. And many dollars that are currently overseas, serving as the underlying means for transactions, will migrate back to the U.S., where those Federal Reserve units will contribute to domestic monetary inflation. In other words, what happens overseas won’t stay overseas. Because for over fifty years, the U.S. has routinely exported to the world the consequences of its inflationary domestic monetary policies. Now we – that is, we in the U.S. and related economies – are about to confront a major reversal in monetary fortunes. So, stand by for a breakout in persistent inflation. How to Remain Ahead of the BRICS Developments and Inflation Okay, inflation is coming. What’s your plan? Cash in the bank is always nice because you want to be able to pay the bills (and taxes, alas). But inflation will rob cash of purchasing power over time, and it’s just a question of how much you’ll lose every year. So, cash is a short-term salve, although having some feels good. Other standbys include real estate, but the adage of “location-location-location” is critical. And what happens to the price mechanism of, for instance, U.S. land when the dollar inflates? What does “value” even mean when that happens, certainly when it comes to buying or selling? And don’t forget about other “real” things, like tools, machines, and spare parts that may become quite valuable as global trade patterns shift, and some items become hard to find, if not unavailable in a transformed economy. This brings us back to hard assets like energy, precious metals, and related base metals critical to keeping the world running. Let’s Talk About Copper I’ll round this out by discussing a more base-metal idea, mostly involving copper. I say “mostly involving copper” because most copper deposits are poly-metallic; that is, there’s copper, plus (not uncommonly) associated amounts of gold, silver, and perhaps lead, zinc, molybdenum, and other elements. It all depends on geology and geochemistry. Copper has strong days ahead for all manner of reasons. Up front, I’ll say that sure, if there’s a near-term recession then the economy will slack off, and copper prices will fall; but on the other side of that, there’s exploding demand, coupled with absolutely baked-in future shortages and higher prices. At the basic level, consider one thing: about three billion (billion with a “b”) people worldwide have access to no or minimal electric power. [Eritrean town and market square; not a power line or light bulb in sight. BWK photo. ] Eritrean town and market square; not a power line or light bulb in sight. BWK photo. Almost all of these souls live in developing lands like Eritrea (see above) or other similarly unprivileged locales across the globe. And just to string a few simple wires and light bulbs to these fellow earthlings will require immense volumes of copper. Indeed, and ironically, many places on earth with little or no electric power also happen to be areas where mining or other resource exploitation removes valuable products that ship out to the distant, developed world. So, you can get a feel for the resentment we see in the comments of future BRICS members. Meanwhile, the rest of the world is also on a development fast track, with everything you see in the YouTube videos, such as massive high rises popping up across China and sprawling urban landscapes from Mexico City to Lagos, Nigeria. And then throw in the developed world, with its focus on becoming “green” by taking gasoline cars off the roads and replacing them with electric vehicles (EVs). (And don’t fret; for every barrel of oil that the West doesn’t burn in its future car fleet, the developing world will find a use.) Along the foregoing lines, one figure I like is that your internal combustion vehicle has about 50 pounds of copper in it, give or take; it’s used in the alternator, wiring, etc. But add it all up, and it’s about 50 pounds. Now, take an EV apart, weigh everything, and get about 250 pounds of copper. This is for the traction motors, batteries, wiring, and everything else. An EV uses about five times as much copper as an old gasoline burner. And multiply that by tens of millions in terms of the projected output of new EV cars by the global auto industry in the years ahead. Right away, you can see that the world needs lots more copper and that copper miners have many good years ahead; well, many good years as long as they have access to copper resources and can mine ores, smelt them, and refine metal. And on this last point, you want companies with low levels of political risk. Opportunities In The Copper Space I should also note that the market has been bidding up the share price for strong copper companies. So even now, the charts are on the high side. But I believe there’s more upside ahead in the years to come. We’re early in this part of the copper cycle. You’re probably familiar with the names of a couple of the biggest big guys in copper. For example, there’s Rio Tinto Group (NYSE: RIO). At over $100 billion market cap, it’s global and diversified. It produces copper and many other metals, materials, and related products. Rio has a deep bench of technical talent and access to capital for operations and expansion. Then there’s Freeport McMoran (NYSE: FCX). This one is large at about $65 billion market cap. And it’s global, with many mines and various metals coming out of the facilities. Plus, many great people and access to capital. If you want a smaller company, look at Toronto-based Lundin Mining (OTC: LUNMF), with a market cap of about $7 billion. It has projects worldwide, in North and South America and Europe. It’s well run, with a substantial upside from a lower capitalization level. Finally, I’ll mention an advanced-stage developer that works in the copper space and is pioneering new technology in exploration and production, namely Ivanhoe Electric, Inc. (NYSE: IE). The market cap is about $1.6 billion, with a stellar list of projects in some of the best copper districts in the U.S. I won’t go deep into details, but this one is a rising star. Note that these ideas are not “official” recommendations. But I do follow the companies. If you buy, use limit orders. Always take advantage of down days in the market. And never chase momentum. As we confront a fast-changing global economy, remember that “real things’ continue to make the world go round. And copper demand will play a significant role in both the developed and underdeveloped nations of the world. The days of “Nobody goes to Eritrea” are ending. That’s all for now… Thank you for subscribing and reading. Best wishes… [Byron W. King] Byron W. King [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. 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