De-dollarization Accelerates, and Gold is The First Asset To React

The US dollar has long served as the world's reserve currency, dominating the global economy, but recent events have called into question how long this arrangement can last. The supremacy of the U.S. dollar is being challenged concurrently on a number of fronts, from nations preferring to do trade in local currencies to BRICS creating its own currency, Saudi Arabia’s willingness to sell oil to China in yuan and gold is responding with a “roar”.?

Particularly China and Russia increased their efforts to abandon the US dollar. Russia has been eschewing the dollar for some time, but attempts picked up speed when Western sanctions were put in place as a result of the invasion of Ukraine.?

According to data gathered by Bloomberg, the Chinese yuan is already the most traded currency in Russia, and the country supports using it for trade settlements between Russia, Asia, Africa, and Latin America. This didn't occur until February, when the yuan's monthly trading volume first topped that of the dollar.

Brazil, Russia, India, China, and South Africa, collectively known as the BRICS, are trying to develop their own common currency. The new currency may be backed by a variety of commodities, such as gold and other rare-earth elements.

However, it appears that the dollar's hegemony undermines the monetary policies of other countries, which is why BRICS should act to offset it. The U.S. dollar dominates world banking far too much. The repercussions on the value of the dollar and the ripple effects have always been dramatic whenever the Federal Reserve Board has started periods of monetary tightening or the opposite, loosening.

China and Malaysia said this week that they were willing to talk about establishing an Asian Monetary Fund to lessen their reliance on the US currency. The central bank of Malaysia is also developing a system for local currency transaction settlement. However, India and Malaysia declared over the weekend that they would no longer be settling trades in US currency and would instead use Indian Rupees. India also announced that it would make its currency available to nations experiencing a scarcity of US dollars.?

Gold is soaring

The gold market may be immediately impacted by this de-dollarization trend, particularly in terms of sentiment. There is undoubtedly a lot of talk about the dollar losing its position as a reserve currency. The direction that discussion takes will be crucial for gold. The notion that the value of the dollar will soon fall is greatly exaggerated. However, it has an impact on consumer opinion and sentiment in the gold market. Sentiment is still largely indifferent when comparing shorts to longs in gold futures.

Gold is typically the first asset to respond to a change in the public's perception of what is occurring with the dollar and the U.S. economy because it will rapidly change sentiment. On Wednesday, the price of gold remained stable above $2,000 per ounce, with June Comex gold contracts closing at $2,039.20, unchanged from the previous day.?

For the eleventh consecutive month, the world's gold stocks rose in February by 52 tonnes, according to the WGC. Central banks purchased 74 tonnes of gold in January, making it the strongest start to a year since at least 2010 when central banks started acting as net purchasers on a yearly basis, according to Krishan Gopaul, senior analyst at WGC.

In conclusion, the de-dollarization of the global economy has been accelerated by the Xi-Putin agreement, Saudi Arabia's switch to selling oil in yuan, and recent events. While this change may benefit some nations, it also raises questions about how American penalties will affect nations like Iran and North Korea. Additionally, it might make things difficult for other nations and increase volatility in financial markets. Given that the US has considerable economic clout thanks to the US dollar's supremacy, the effect on the US economy is a crucial factor. It is unclear how the world's transition to a more multipolar monetary system will impact the world economy over time.