The current run of record central bank purchases has helped support the price of the precious metal, but there’s an emerging new case as to why investors should be long gold, according to Chris Watling, Chief Market Strategist at Longview Economics.

“[A]s we outlined in our recent analysis of central bank/official buying of gold, there’s no clear correlation between the level/growth of their purchases and the direction of the gold price,” Watling said in the company’s latest Commodity Fundamentals Report. “Indeed, apart from the past 18 months since the war, the gold price has been highly correlated with our 3 factor macro driven gold model,” which focuses on TIPS, interest rate expectations, and the performance of the U.S. dollar.

Watling said the key question is why this relationship has broken down over the last year and a half.

“Some argue that it reflects significant buying by central banks,” he said. “Others argue that it’s the TIPS yield itself which has been distorted (not the gold price), perhaps because of heavy selling of USTs by the Chinese in order to slow the RMB’s weakness […] Either way, the case is building for gold to resume its rally.”

First, Watling points out that gold is once again oversold and has returned to its 200-day moving average support level of around $1895.

“Given it’s also now oversold (see medium term technical market timing model – fig 4 below), and given our expectations about the shift in rate expectations and TIPS yields […] gold is once again an attractive LONG proposition,” he said.

Watling said that from a fundamentals perspective, gold continues to be driven primarily by rate expectations, real TIPS yields, and the dollar. “Reflecting our view that inflation has primarily been driven by monetary factors,” meaning too much money chasing too few goods, “we continue to expect US inflation to fall rapidly, with deflation a possible and growing risk,” he said. “If correct and if our view on recession is also correct, then US rate expectations (& TIPS yields) should move notably lower.”

On the other hand, Watling points out that the outlook for the dollar is less favorable for gold. “It’s worth bearing in mind, though, that the possibility of interventions in both the RMB & YEN is growing with both currencies at/around levels of prior intervention,” he said. “Added to which, if 2 out of 3 key macro factors are supportive of the gold price, that would be a significant improvement over recent months and likely enough to drive the gold price higher.”

Watling cautioned that there are still risks to his bullish gold scenario, including “a 2008 style credit crunch” driven by the Fed’s dramatic tightening, but pointed to the March banking crisis as proof that the central bank was ready and willing to flood the system with liquidity to prevent this. “Hence it’s a low risk event (for LONG gold positions),” he said. “Other risks include dollar strength – although it’s noteworthy that gold rallied in 2001 (during that recession) despite bouts of dollar strength.”

Spot gold continues to hold its morning gains at the time of writing, last traded at $1915.44, up 0.95% on the session.

Source: Kitco

The BRICS (Brazil, Russia, India, China, South Africa) summit in Johannesburg could have far-reaching ramifications for the world of finance, specifically for precious metals and the US dollar. As the bloc contemplates expansion and expresses discontent over the dominance of the US dollar in global trade, investors worldwide should be attentive to these seismic shifts in economic power dynamics.

Historically, in periods of political and economic instability, gold and silver have been considered safe-haven assets. As BRICS nations push for a greater role in shaping the global financial landscape and challenge Western supremacy, uncertainties could cause a surge in demand for these precious metals. Additionally, the inclusion of Saudi Arabia, the world’s second-largest oil producer, could provide a further boost. If the bloc promotes trading oil in currencies other than the dollar or even in gold, it could drive up the prices of these metals.

The US dollar’s preeminence in global transactions is under scrutiny. As highlighted in the summit, there’s a growing consensus among BRICS nations to conduct trade in local currencies. While the immediate dethroning of the dollar seems unlikely, a gradual move towards a multipolar financial world, where several currencies co-exist in global trade, is plausible.

Cobus van Staden’s, an analyst at the China Global South Project, analogy of “a lot of paper cuts” perfectly encapsulates the situation. BRICS may not deliver a knockout punch to the dollar, but a series of smaller actions could erode its dominance. These “paper cuts” may include bilateral trade agreements in local currencies, establishment of alternative payment systems, or even gold-backed financial instruments.

An erosion of confidence in the US dollar could trigger a bull market for precious metals. As nations seek to diversify away from dollar-centric systems, they might increase their gold and silver reserves. A multipolar currency world, where local currencies gain prominence, would likely have fluctuating exchange rates. This volatility could further push central banks and investors towards the stability offered by gold.

The US and its allies are closely watching the geopolitical aspirations of BRICS, especially the inclusion of nations like Saudi Arabia. As the bloc grows and its influence expands, it might create a counterweight to Western financial institutions. While the geopolitical repercussions are vast, from a financial perspective, it introduces a new set of players determining global precious metal demand and currency flows.

In conclusion, while the BRICS bloc grapples with internal differences, their united front against the dollar’s dominance signals a transformative phase in global finance. Precious metal investors and dollar watchers alike should keep a keen eye on the bloc’s decisions, as they have the potential to reshape the world’s economic landscape.

Source: FX Empire

Gold isn’t losing its allure, according to a dozen money managers who all told Bloomberg News they expect to maintain or raise their exposure to the precious metal in the coming 12 months.

Bullion has stumbled in recent weeks in the face of multiple headwinds from surging real yields to a stronger U.S. dollar and the prospect of U.S. rates staying higher for longer. The survey of investors – from sovereign wealth managers to hedge funds – offered some modest optimism for price prospects into 2024.

None of the respondents said they would cut their exposure to gold in the immediate 12 months, and five of them said they expected to boost their allocations. More than two-thirds of them see prices rising, and five expect a clear all-time high. The poll was conducted between Aug. 10 and Aug. 22.

There’s still obvious uncertainty around when the Federal Reserve will end the bank’s tightening cycle, which would be an important positive for noninterest-bearing gold. Global central banks continue to grapple with stubborn inflation, and the U.S. labor market has remained surprisingly resilient in the face of aggressive monetary tightening.

While there are some signs that investors are bracing for rates to stay higher for longer, the swaps market is still pricing in no more rate hikes, and a shift to policy easing next year.

“We do anticipate there’s pent-up gold demand from investors waiting for the Fed to finish,” said Darwei Kung, head of commodities and portfolio manager at DWS Group. “That’s a positive setup from our perspective.” He sees gold reaching a record $2,250 an ounce in the period.

Bullion is currently trading near $1,900 an ounce, down about 8% from this year’s peak. It reached a record in August 2020 at about $2,075, amid global economic turmoil triggered by the Covid-19 pandemic.

To be sure, economists are getting more confident that the U.S. economy can glide to a soft landing, in a marked shift from widely-held views earlier this year that the economy would experience a sharp downturn.

A separate survey also showed expectations for higher gold prices. Gold will trade at $2,021 per ounce 12 months from now, according to the median of 602 responses to Bloomberg’s Markets Live Pulse online survey of global readers conducted from Aug. 14 to 18.

The continued appetite for gold points to lingering worries about geopolitical tensions and macroeconomic uncertainties – for example, simmering tensions between the U.S. and China, war in Ukraine, or what’s next for China’s property crisis. Other positive factors for gold include continued purchases by global central banks and relatively strong retail demand in emerging markets.

Meanwhile, a breakdown in the correlation between equities and bonds – a cornerstone of the popular 60/40 investment strategy – is also helping to make the case for the metal due to its ability to diversify portfolios, according to the World Gold Council.

“People are looking for things that do move differently and gold does that,” the council’s head of institutional investor relationships for APAC ex-China, Jaspar Crawley, said at a panel in Sydney on Tuesday. “Diversification has now become a real thing.”

Still, in the near term, gold-watchers have plenty of reasons to be gloomy about the metal’s prospects. For the next clues on interest rates, investors will be paying attention to commentary from this week’s Jackson Hole gathering of central bankers. Fed Chair Jerome Powell is due to speak on Friday.

Spot gold gained 0.3% to $1,902.52 an ounce as of 11:15 a.m. in London.

Source: Bloomberg

The U.S.-DRC-Zambia memorandum of understanding demonstrates how the United States aims to counter China and bolster its clean energy supply chains by deepening ties with African nations. Yet how distinct is the U.S. approach from the Chinese approach to such deals?

In December 2022, at a sideline event during the U.S.-Africa Leaders Summit in Washington, the United States signed a trilateral memorandum of understanding (MOU) with the Democratic Republic of the Congo (DRC) and Zambia for the development of an integrated value chain for the production of electric vehicles (EV) batteries. This MOU aims to develop a complete value chain around EV batteries in the DRC and Zambia—from the extraction of minerals to the assembly line. It also advances U.S. government objectives to secure a value chain for the strategic minerals necessary for the clean technologies that will drive the country’s low-carbon transition. Described by U.S. Secretary of State Antony Blinken as “a truly important initiative for the future,” the MOU reveals much about the Joe Biden administration’s new approach toward the African continent, an approach it characterizes as “strengthening partnerships to meet shared priorities.”

The trilateral MOU comes at a time when U.S.-Africa relations are at a turning point within the context of important geopolitical shifts, including the rise of China as a major economic and political actor. In unpacking the MOU, this article examines the wider geopolitical context of the signing, compares the U.S. approach with the Chinese approach to such deals, and questions how the DRC and Zambia can exercise agency in the MOU’s execution.

The International Energy Agency estimates that manufacturers of clean energy technologies will need forty times more lithium, twenty-five times more graphite, and about twenty times more nickel and cobalt in 2040 than in 2020. Due to this global shortage of critical minerals, Africa—which is home to around 30 percent of the world’s mineral reserves—has become a site of great power competition. The DRC and Zambia, in particular, are among the world’s leading producers of certain critical minerals. The DRC produces close to 70 percent of the world’s cobalt, which is essential for the production of EV batteries (see figure 1). Meanwhile, Zambia is Africa’s second-largest producer of copper, which is used in electrical equipment such as wiring and motors (see figure 2).

In the race involving the United States, China, and European countries, among others, to secure access to the minerals essential to the clean energy transition, China is far ahead in building supply chains for cobalt, rare earth minerals, lithium, and several other essential metals and minerals. China has developed a large presence in minerals supply chains by refining most of the world’s cobalt, copper, lithium, and nickel. Chinese companies have emerged as the major players in the mining sector in the DRC and Zambia, after decades of dominance by Western multinational companies. In the DRC, the Chinese company China Molybdenum controls nearly 80 percent of one of the country’s largest copper and cobalt mines, Tenke Fungurume. Chinese dominance along the entire value chain of strategic minerals worries many in the West, especially in the United States, where the Biden administration is seeking to expand manufacturing and sales of EVs by 2030.

The United States has key vulnerabilities in sourcing critical minerals to meet domestic demand for the transition to a low-carbon economy. The United States is import-reliant (meaning that imports account for more than half of annual consumption) for thirty-one of the thirty-five minerals designated as critical by the U.S. Department of the Interior. Sixteen of those are largely refined in China. Overall, the United States is dependent on China for more than half of its supply of twenty-five minerals, even as some of these minerals are found in abundance in Africa.

The United States is now aiming to address its critical minerals demand by pledging to do mining more responsibly than how China currently does it and how the West has done in the past, by avoiding inflicting harmful impacts on both the environment and local populations. It aims to help transform African economies by leaning into the push for clean energy. The 2023 edition of the annual Mining Indaba, Africa’s largest mining conference, in Cape Town, South Africa, drew the largest and most high-level U.S. delegation ever, including officials from the White House and the Departments of Commerce, Energy, and State. The size and level of this delegation showed the awareness within the U.S. government of the importance of securing access to Africa’s critical minerals. 

More broadly, the U.S.-DRC-Zambia MOU was signed to strengthen already existing cooperation between the DRC and Zambia to develop a cross-border integrated value chain for the production of EV batteries. This MOU is in line with the African Green Minerals strategy put forward by the African Development Bank, whose priorities include the establishment of battery and EV value chains, starting with two- and three-wheeled vehicles and commuter buses.

With the MOU, the United States also aims to help meet the economic and industrial needs of the DRC and Zambia. Yet the MOU constitutes a first-step instrument and political signaling tool. Its successful implementation will depend on specific requirements and input from all three countries.

In unpacking the MOU, three themes emerge that illustrate the broader shifts in U.S. relations with African countries, as well as how the U.S. approach compares with the Chinese approach to such relationships.

The public signature of the MOU, along with other trade and investment deals, at the U.S.-Africa summit in December 2022 is part of the U.S. government’s strategy to make its relations with the continent more tangible and aligned with African aims of getting better outputs from these deals in alignment with their governments’ national priorities. The signing happened at a very different time compared to past decades, when the DRC was considered less reputable and battery minerals were not regarded as critical or strategic. In today’s geopolitical environment, in which China has taken the lead in building out critical minerals supply chains in Africa, the United States aims to both catch up with and counter China.

This public MOU signing seems to be adapted from China’s playbook, especially from Chinese agreements on financing and building hard infrastructure projects in Africa. For example, in 2018, China signed MOUs with thirty-seven African countries and the African Union at a Belt and Road Initiative summit, indicating that efforts to bolster cooperation through summits go very far.

MOUs are both soft-law and soft-power tools that open the door for future negotiations and contracts between foreign entities. Most MOUs are less than ten pages, sometimes only a page or two. (The trilateral MOU in this case is five pages.) Thus, signing a MOU makes sense because it allows for due diligence and sourcing of financing to begin without expending resources in legal and accounting procedures that a full-fledged agreement would require; the transaction costs are lower. MOUs are hence used as first-step instruments for the prenegotiation phase of infrastructure and mining contracts and can serve as a framework and basis for further negotiations.

The U.S.-DRC-Zambia MOU is so far a simple expression of the three countries’ interest in working together. The signing does not guarantee its implementation, which depends on many factors that the U.S. government alone cannot entirely control or anticipate. It is a nonbinding agreement that offers flexibility and avoids the rigidity of a legally binding contract. Moreover, it can be undone.

At the bilateral level, both the United States and China have signed several MOUs with the DRC. The U.S. government has signed three MOUs on mining projects with the country’s Ministry of Mines and the Ministry of Employment, Labour, and Social Security in the last decade. One of the MOUs China signed was for the major Sicomines mining deal project, which included two annexes related to infrastructure and mining parts of the deal, in 2007. While not specifying financial commitments, that MOU gave additional details on the negotiations and led to a cooperation agreement—the final stage of a MOU that leads to detailed formal contracts signed by both countries.

At this stage, the value offered by the U.S.-DRC-Zambia MOU seems more political than actionable and can be considered a push for the U.S. government to have deliverables to point to after the conclusion of the U.S.-Africa summit.

While past bilateral U.S.-DRC MOUs were signed by dedicated ministries and were therefore more specific and less public, the U.S.-DRC-Zambia MOU remains vague. The document does not mention concrete engagements or an action plan, as bilateral MOUs usually do. It specifies neither technological input and transfers nor U.S. financial commitments, saying that “all activities pursued under this MOU are subject to the availability of funds.” It stipulates that it is not intended to be legally binding and does not constitute an obligation.

The MOU is a means to position the United States as a contender not only to China but also to European countries that are courting the DRC and other African countries to secure critical minerals. The broad rhetorical style used at this stage is also a means to signal to the respective constituencies in the United States, the DRC, and Zambia that the three governments are getting important things done.

What is distinct about the U.S.-DRC-Zambia MOU is that it marks the first time that an existing bilateral agreement between two African countries transformed into a trilateral initiative involving three parties. Unlike the Chinese approach that largely centers around bilateral deals in the infrastructure and mining sectors, this MOU includes three parties and evolved out of a bilateral agreement.

China makes greater use of government-to-government and less use of government-private sector MOUs. Chinese official entities also issue MOUs at various levels of the Chinese administration (such as the central or provincial levels), while the United States usually involves both the government and the private sector. Yet, in the trilateral MOU, several questions remain open, including whether U.S. firms—known for their deep risk aversion to Africa—are willing to invest in the initiative and whether funds are available.

The U.S.-DRC-Zambia MOU aims to centralize the production of EV batteries in the DRC and Zambia, despite the current trend of mineral extraction happening in Africa but refinement taking place elsewhere. The follow-up negotiations and execution of the MOU will be greatly informed by the extent to which the two African countries can exercise more agency. The countries’ governments seem more aware of this new geopolitical setting, and the ongoing review and renegotiation of cobalt and copper mining deals between China and the DRC have revealed how the DRC government could increase its agency and play a bigger role in negotiating better mining deals. However, with presidential elections looming (in December 2023 in the DRC), it will be crucial to avoid political interference and conflicts of interests in the negotiation process that may hamper the deals.

Whether the DRC and Zambia can increase their technical capacities will determine their strength in the negotiation process and shape how much they can influence the MOU’s execution. An upgrade of technical capabilities can be done by associating the right expertise both from within their respective cabinets and relevant ministries and external expertise to conduct meaningful cost-benefit analyses to determine the value of the minerals and potential revenues as well as the best investment opportunities.

The MOU’s execution will also be shaped by how the Congolese and Zambian governments  navigate great power rivalry between the United States and China, and to some extent Europe, while prioritizing their populations’ economic and social interests in the long term.

MOUs feature prominently in Africa-China engagement and are usually preferred by both sides to formal agreements, which the United States and European countries lean on more often. Whether bilateral or trilateral, MOUs provide a framework that can be built upon. This is the case for both the U.S. and Chinese versions.

For the U.S.-DRC-Zambia MOU to be effective, the follow-up policy initiatives and negotiation of the agreement should contain concrete measures, have clear benchmarks, and create an oversight mechanism to assure that the objectives are successfully implemented and move beyond political signaling.

Source: Carnegie Endowment for International Peace

In a recent in-depth interview, Canadian business magnate Frank Giustra offered critical insights into the future of gold, investment strategies, and the economic landscape. As the founder of Eris Gold, Giustra is well-positioned to speak on these matters, sharing both his professional experience and personal life lessons to provide a comprehensive perspective on financial planning and wealth preservation.

Giustra emphasized the enduring importance of gold, particularly as a hedge against economic downturns and inflation. “To preserve your wealth, own physical gold… and own it and don’t sell it,” he said. This classic financial advice continues to resonate, especially in an era of economic uncertainty.

However, Giustra also distinguished between the role of established, large mining companies and smaller, more aggressive outfits like his own Eris Gold. While larger companies have been conservative, especially post-2011, smaller entities offer an aggressive growth plan for significant value appreciation. Speaking on his vision for Eris Gold, Giustra stated that the company starts with about 10 million ounces of “really good grade gold” and aims to build it into a million-ounce per year producer, thus achieving the status of a senior mining company.

The interview also touched on the topic of risk in investments. Giustra pointed out that while every portfolio should include some element of risk for growth potential, it’s crucial to avoid putting all your eggs in one basket. “I wouldn’t be like the Bitcoiners say you have to put it all into this, and you’re going to be fabulously wealthy. That’s pretty dumb investment advice,” he cautioned.

One of the most compelling aspects of the conversation was when Giustra recounted his family’s experience with hyperinflation in Argentina, where his father lost his wealth. “By the time [my father] got his money sometime in the late 70s, it was worthless,” he revealed. This personal anecdote served as a powerful reminder of the importance of diversifying assets and focusing on wealth preservation, particularly in gold.

Toward the end of the discussion, Giustra showcased a more balanced life philosophy. He spoke of his love for the Mediterranean diet, suggesting that a holistic approach to investment isn’t just about financial returns but also about improving one’s quality of life.

In conclusion, Frank Giustra’s multi-faceted insights into gold, the mining industry, and investment strategies offer a valuable roadmap for anyone seeking to navigate the complex world of financial planning. From his professional experience to the life lessons learned from personal hardships, Giustra’s advice serves as both a guide and a warning, making it clear that in a world filled with uncertainties, the timeless value of gold continues to offer avenues for both wealth preservation and growth.

Watch the interview on YouTube.

Even though the timing of the new BRICS (Brazil, Russia, India, China, and South Africa) currency is still a big unknown, it is an inevitable outcome, according to Andy Schectman, President and Owner of Miles Franklin.

“I do believe that the BRICS will issue a common settlement currency, and it will be backed by something,” Schectman told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. “It’s coming. Whether or not it is a gold-back currency that is introduced in a few weeks or in a few months, or next year, to me, the alliance that is being built represents the majority of the human population.”

In the lead-up to the BRICS summit taking place in Johannesburg on August 22-24, there have been conflicting reports about whether a gold-backed currency was going to be discussed.

According to Anil Sooklal, South Africa’s Ambassador at Large to Asia and BRICS, told reporters last month that a BRICS currency was not on the agenda for the upcoming summit.

“There’s never been talk of a BRICS currency, it’s not on the agenda,” Sooklal said. “What we have said and we continue to deepen is trading in local currencies and settlement in local currencies.”

The more immediate goals for the BRICS bloc are to sidestep the SWIFT system and have the ability to avoid Western sanctions. And there is one event that investors need to closely monitor concerning this – Saudi Arabia’s participation at the upcoming BRICS summit.

The BRICS alliance is expected to expand its membership soon, with over 20 countries formally asking to join the BRICS, including Saudi Arabia, Argentina, Iran, the United Arab Emirates, and more.

But how the BRICS bloc expands will play a vital role in the global de-dollarization move as member countries continue to push to ditch the greenback and trade using their own currencies.

Schectman sees Saudi Arabia as an essential player in this transition, with eventually 85% of the global population dumping the U.S. dollar.

“There is this cohesion of countries that have joined together to break free from the Western hegemony,” Schectman said. “And I look to Saudi Arabia as the linchpin of all of the issues surrounding the de-dollarization and the dollar hegemony.”

This all hinges on the petrodollar and how other countries need to hold the greenback to buy oil from Saudi Arabia.

Schectman referred to the deal struck between the Nixon administration and Saudi Arabia in the 1970s, which saw Saudis trade oil exclusively in dollars in exchange for security guarantees from the U.S. Following this deal, there was also a shift within the OPEC itself to keep oil in dollars.

“That was the deal we struck with Saudi Arabia and, by extension, OPEC, who has for almost 50 years [conducted] about 90% of all the oil sales across the globe in dollars,” Schectman said. “And this has created a synthetic demand for the dollar.”

This has given the greenback its petrodollar status. But the recent moves from Saudi Arabia should be alarming to the world’s reserve currency, Schectman pointed out.

“I see Saudi Arabia as a very important cog in that [de-dollarization] movement because when Saudi Arabia accepts other currencies for oil, the lack of settlement in the dollar will have substantial effects,” he said. “The glue that will make all of this work is indeed having a currency backed by commodities, presumably gold, using distributed ledger technology or blockchain.”

This whole move against the dollar also goes far being the BRICS bloc, Schectman added. If all the new alliances come together, it would represent 85% of the human population. “If you put together the Belt Road Initiative, the BRICS, the Shanghai Cooperation Organization, and the Eurasian Economic Union … it is a very big deal,” he noted.

Another recent development was Saudi Arabia approving the decision to join the China-led Shanghai Cooperation Organization (SCO) as a dialogue partner. The SCO is a political, security and trade alliance created in 2001 to counter Western influence. Its members include China, Russia, India, Pakistan, and four central Asian countries.

“This is a very big deal. The Shanghai cooperation organization is the largest regional military and financial organization in the world. It represents about 60% of the Eurasian landmass and 40% of the global GDP,” Schectman said. “We can see how they are pushing away from the Western influence and getting very close with some powerful entities.”

The de-dollarization trend has not only been accelerating, but it is also irreversible at this stage, we are at a point of no return – “past the Rubicon”, according to President and Owner of Miles Franklin. “When you see all of this settlement outside the dollar, that’s significant. It creates less demand for the dollar and an environment where the dollar has to fall, and interest rates have to rise to compensate.”

Schectman sees 85% of the global population dumping the greenback in due time. “It’s like a game of Jenga. You keep pulling out these pieces of the dollar hegemony one by one. At what point does it tumble? It’s not going to happen overnight, but you can see the acceleration. So little by little, and then all at once.”

Source: Kitco

Gold buying by central banks reached its highest level in 55 years this February 2023, according to the World Gold Council. The uptick in gold buying is part of a decades-long shift away from the U.S. dollar as the world’s primary reserve currency, and has coincided with the strengthening of emerging economies like Brazil, Russia, India, China, and South Africa. In recent weeks, members of the BRICS economic coalition have announced plans to introduce a new, alternative currency to further challenge the U.S. dollar’s role as primary world currency.

Since the U.S. dollar was officially decoupled from gold in 1971 and the gold standard was fully abandoned in 1973, central banks have bought gold in times of market volatility and uncertainty. Gold can act as a hedge against the U.S. dollar, and may be in higher demand in times of high inflation and political tension with the United States. In recent years, central banks in emerging markets have led the gold buying spree, signaling uncertainty in international relations and a shift towards independence from the U.S. monetary system. (Yet the U.S. is by far the largest holder of gold – here are the countries with the most gold.)

To determine which countries are buying up the world’s gold, 24/7 Wall St. reviewed data on gold reserves by country from the World Gold Council. Countries were ranked based on the net change in gold reserves held by their central bank from 2017 to 2022. Data on the value of gold reserves and gold reserves as percentage of all foreign reserves also came from the WGC and was calculated using the LBMA (London Bullion Market Association) Gold Price for the fourth quarter of each year. Population figures are from the World Bank and are for 2021.

The largest buyer of gold from 2017 to 2022 is, by far, the central bank of Russia (though data for Russia is actually only until the end of 2021. The U.S.-imposed sanctions on Russia in response to its invasion of Ukraine effectively made the hundreds of billions of U.S. dollars the Russian central bank holds worthless. Russia recently said it further increased its bullion holdings in 2022. (Here are the most sanctioned countries of all time.)

Other countries whose relations with the U.S. may be worsening have also purchased gold. From 2017 to 2022, the central banks of Russia, Turkey, India, and China were the largest buyers of gold. 

And while Russia, Turkey, India, and China account for nearly 60% of the net change in gold reserves globally from 2017 to 2022, it is small countries in the Middle East and North Africa that are buying gold at the fastest rates. Mauritania, Qatar, and the United Arab Emirates all more than tripled their gold reserves from 2017 to 2022, while Oman increased its once meager gold supply by more than one hundredfold. 

Countries have also made significant changes to the composition of their central bank holdings, with upper- and middle-income countries in Central Asia and Latin America doubling down on their gold positions the most. In Pakistan, Kazakhstan, Turkey, Lebanon, and Venezuela, gold as a share of central bank holdings increased by more than 15 percentage points from 2017 to 2022, while in Bolivia gold as a percentage of central bank holdings increased by a world-leading 49 percentage points. Globally, gold as a share of total central reserve holdings rose from 9.7% to 12.9%.

25. Czech Republic
> Chg. in gold reserves since 2017: +2.5 metric tons, reaching 12.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$305.6 million, reaching $697.4 million in 2022
> Chg. in share of total reserves since 2017: +0.2 ppts, reaching .5% in 2022
> Population, 2021: 10.5 million

24. Kyrgyzstan
> Chg. in gold reserves since 2017: +3.2 metric tons, reaching 10.2 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$306.0 million, reaching $594.4 million in 2022
> Chg. in share of total reserves since 2017: +11.0 ppts, reaching 24.2% in 2022
> Population, 2021: 6.7 million

23. Mongolia
> Chg. in gold reserves since 2017: +3.7 metric tons, reaching 7.9 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$285.3 million, reaching $462.0 million in 2022
> Chg. in share of total reserves since 2017: +10.5 ppts, reaching 16.4% in 2022
> Population, 2021: 3.3 million

22. Ireland
> Chg. in gold reserves since 2017: +6.0 metric tons, reaching 12.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$452.8 million, reaching $701.9 million in 2022
> Chg. in share of total reserves since 2017: -0.3 ppts, reaching 5.4% in 2022
> Population, 2021: 5.0 million

21. Argentina
> Chg. in gold reserves since 2017: +7.0 metric tons, reaching 61.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.3 billion, reaching $3.6 billion in 2022
> Chg. in share of total reserves since 2017: +3.9 ppts, reaching 8.0% in 2022
> Population, 2021: 45.8 million

20. Belarus
> Chg. in gold reserves since 2017: +7.1 metric tons, reaching 53.6 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.2 billion, reaching $3.1 billion in 2022
> Chg. in share of total reserves since 2017: +15.3 ppts, reaching 41.8% in 2022
> Population, 2021: 9.3 million

19. Serbia
> Chg. in gold reserves since 2017: +19.1 metric tons, reaching 38.5 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.4 billion, reaching $2.2 billion in 2022
> Chg. in share of total reserves since 2017: +5.8 ppts, reaching 12.5% in 2022
> Population, 2021: 6.8 million

18. Ecuador
> Chg. in gold reserves since 2017: +22.0 metric tons, reaching 33.8 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.5 billion, reaching $2.0 billion in 2022
> Chg. in share of total reserves since 2017: +3.3 ppts, reaching 25.9% in 2022
> Population, 2021: 17.8 million

17. Singapore
> Chg. in gold reserves since 2017: +26.3 metric tons, reaching 153.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$3.7 billion, reaching $9.0 billion in 2022
> Chg. in share of total reserves since 2017: +1.1 ppts, reaching 3.0% in 2022
> Population, 2021: 5.5 million

16. Cambodia
> Chg. in gold reserves since 2017: +29.9 metric tons, reaching 52.4 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$2.1 billion, reaching $3.1 billion in 2022
> Chg. in share of total reserves since 2017: +9.4 ppts, reaching 17.1% in 2022
> Population, 2021: 16.6 million

15. Iraq
> Chg. in gold reserves since 2017: +40.5 metric tons, reaching 130.3 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$3.9 billion, reaching $7.6 billion in 2022
> Chg. in share of total reserves since 2017: +1.4 ppts, reaching 9.0% in 2022
> Population, 2021: 43.5 million

14. Egypt
> Chg. in gold reserves since 2017: +48.9 metric tons, reaching 125.3 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.1 billion, reaching $7.3 billion in 2022
> Chg. in share of total reserves since 2017: +14.2 ppts, reaching 22.9% in 2022
> Population, 2021: 109.3 million

13. Kazakhstan
> Chg. in gold reserves since 2017: +51.8 metric tons, reaching 351.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$8.1 billion, reaching $20.5 billion in 2022
> Chg. in share of total reserves since 2017: +17.9 ppts, reaching 58.4% in 2022
> Population, 2021: 19.0 million

12. Uzbekistan
> Chg. in gold reserves since 2017: +59.4 metric tons, reaching 395.9 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$9.1 billion, reaching $23.1 billion in 2022
> Chg. in share of total reserves since 2017: -4.4 ppts, reaching 64.5% in 2022
> Population, 2021: 34.9 million

11. Qatar
> Chg. in gold reserves since 2017: +62.0 metric tons, reaching 91.8 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.1 billion, reaching $5.4 billion in 2022
> Chg. in share of total reserves since 2017: +3.4 ppts, reaching 11.6% in 2022
> Population, 2021: 2.7 million

10. Brazil
> Chg. in gold reserves since 2017: +62.4 metric tons, reaching 129.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.8 billion, reaching $7.6 billion in 2022
> Chg. in share of total reserves since 2017: +1.6 ppts, reaching 2.3% in 2022
> Population, 2021: 214.3 million

9. United Arab Emirates
> Chg. in gold reserves since 2017: +72.3 metric tons, reaching 80.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.3 billion, reaching $4.7 billion in 2022
> Chg. in share of total reserves since 2017: +3.3 ppts, reaching 3.6% in 2022
> Population, 2021: 9.4 million

8. Japan
> Chg. in gold reserves since 2017: +80.8 metric tons, reaching 846.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$17.6 billion, reaching $49.3 billion in 2022
> Chg. in share of total reserves since 2017: +1.5 ppts, reaching 4.0% in 2022
> Population, 2021: 125.7 million

7. Thailand
> Chg. in gold reserves since 2017: +90.2 metric tons, reaching 244.2 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$7.8 billion, reaching $14.2 billion in 2022
> Chg. in share of total reserves since 2017: +3.4 ppts, reaching 6.6% in 2022
> Population, 2021: 71.6 million

6. Hungary
> Chg. in gold reserves since 2017: +91.4 metric tons, reaching 94.5 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$5.4 billion, reaching $5.5 billion in 2022
> Chg. in share of total reserves since 2017: +12.9 ppts, reaching 13.4% in 2022
> Population, 2021: 9.7 million

5. Poland
> Chg. in gold reserves since 2017: +125.7 metric tons, reaching 228.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$9.1 billion, reaching $13.3 billion in 2022
> Chg. in share of total reserves since 2017: +4.2 ppts, reaching 8.0% in 2022
> Population, 2021: 37.7 million

4. China
> Chg. in gold reserves since 2017: +168.0 metric tons, reaching 2,010.5 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$40.8 billion, reaching $117.2 billion in 2022
> Chg. in share of total reserves since 2017: +1.2 ppts, reaching 3.6% in 2022
> Population, 2021: 1.4 billion

3. India
> Chg. in gold reserves since 2017: +229.3 metric tons, reaching 787.4 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$22.8 billion, reaching $45.9 billion in 2022
> Chg. in share of total reserves since 2017: +2.5 ppts, reaching 8.1% in 2022
> Population, 2021: 1.4 billion

2. Turkey
> Chg. in gold reserves since 2017: +339.8 metric tons, reaching 541.8 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$23.2 billion, reaching $31.6 billion in 2022
> Chg. in share of total reserves since 2017: +18.5 ppts, reaching 27.6% in 2022
> Population, 2021: 84.8 million

1. Russia
> Chg. in gold reserves since 2017: +462.9 metric tons, reaching 2,301.6 metric tons in 2021
> Chg. in value of gold reserves since 2017: +$57.9 billion, reaching $134.2 billion in 2021
> Chg. in share of total reserves since 2017: +3.6 ppts, reaching 21.2% in 2021
> Population, 2021: 143.4 million

Source: 24/7 Wall St

It’s a tale of two downgrades, and the reaction in global markets couldn’t be more different.

When S&P Global Ratings stripped Washington of AAA status in August 2011, all hell broke loose in global markets. The reaction in August 2023 to fitch ratings downgrading the US was infinitely less chaotic.

But for Asia, Fitch’s move – and the rationale behind it – is a much bigger headache than the non-reaction in bond and stock markets suggests.

For one thing, it’s a reminder that faith in the linchpin asset of the global financial system is dwindling. For another, this region may be about to get burned on more than US$3.2 trillion of state wealth as Washington fiddles.

The reference here is to the titanically large stockpile of US Treasury securities held by top Asian authorities. Here too, the dynamics surrounding these historical bookends are quite different.

Twelve years ago, the conventional wisdom was that Asian central banks had the leverage. The idea was that if Washington took its top bankers for granted, they could issue history’s most spectacular margin call. This week, it’s clear that Asia is now in essence trapped with its mountains of dollars.

This explains why neither japan , the top holder of US Treasuries with $1.1 trillion, nor China, the second-biggest with $860 million, has dumped huge blocks of dollar-denominated debt. The same goes for Taiwan ($235 billion), India ($232 billion), Hong Kong ($227 billion), Singapore ($188 billion) or South Korea ($106 billion).

The slightest whiff that Washington’s Asian bankers are bailing on the US Treasury market would destabilize the global financial system.

Not that the US isn’t tempting Asian leaders to do just that. In its rationale for downgrading Washington, Fitch pointed as much to chaotic politics as America’s fiscal trajectory toward the $33 trillion national debt level. The ratings company cited Republicans playing games with the debt ceiling.

“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the company said.

Fitch highlighted “expected fiscal deterioration” thanks to a “high and growing” government debt burden. But it also said the January 6, 2021, riot at the US Capitol was a key factor.

As Richard Francis, a co-head of Fitch’s Americas sovereign ratings division, told CNBC:“We’ve seen a pretty steady deterioration in governance over the last couple of decades. You can highlight a few key elements. One would be January 6.”

The “timing surely caught everyone off guard,” says strategist Edward Moya at Oanda. Calm prevails, so far. For now, global markets are taking the Fitch downgrade significantly better than they did S&P’s in 2011.

“While investors should take the downgrade in their stride since Uncle Sam can easily meet his near-term payments, the action still focuses attention on debt sustainability as US fiscal deficits move towards 6% of GDP during a boom period,” says analyst Tan Kai Xian at Gavekal Dragonomics.

Tan adds that the US Treasury market seems to be reacting with a “casual shrug” for three reasons.

One, Fitch had flagged the risk of a ratings downgrade in May and kept the US on “negative watch” even after debt-limit agreement between Congress and US President Joe Biden in June.

Two, investors are well aware of the reasons for the downgrade, so aggressive market repricing wasn’t necessary.

And three, the downgrade is unlikely to affect the use of US Treasuries as a bedrock asset.

“After all,” Tan argues, “US Treasuries remain the Federal Reserve’s top choice of collateral for its lending facilities.” For the next 17 months, Tan says, the US can comfortably make payments as the congressional agreement suspends its borrowing constraint until January 2025.

The real question in the short run is whether global markets can absorb the heavy debt issuance the US Treasury is planning without a sharp surge in yields, and with it, Washington’s funding costs.

Earlier this week, the Treasury said new debt issuance would rise to $103 billion in its so-called quarterly refunding auctions next week, slightly more than most dealers expected.

“The question from here is if investors will be willing to buy the dip” or “if the selloff has room to extend” amid debate where US yields are heading, says strategist Benjamin Jeffery at BMO Capital Markets.

On the plus side, Fed chairman Jerome Powell’s team is no longer forecasting a recession. This week, Bank of America became the first major bank to drop its forecast for a recession this year.

“Recent incoming data has made us reassess our prior view that a mild recession in 2024 is the most likely outcome for the US economy,” BofA economists wrote in a note. “Growth in economic activity over the past three quarters has averaged 2.3%, the unemployment rate has remained near all-time lows, and wage and price pressures are moving in the right direction, albeit gradually.”

On Wednesday, ADP, the largest US private payroll supplier, reported that private employers had added 324,000 new jobs in July, far exceeding the 175,000 many economists had been expecting.

“The economy is doing better than expected and a healthy labor market continues to support household spending,” says ADP economist Nela Richardson. “We continue to see a slowdown in pay growth without broad-based job loss.”

As such, some prominent economists agreed with US Treasury Secretary Janet Yellen’s take that the thinking behind the Fitch downgrade is “outdated.” Former Treasury secretary Larry Summers called the decision “bizarre and inept.” Mohamed El-Erian, chief economic adviser to Allianz, was “perplexed” by Fitch’s timing and arguments. More to come?

Taking a longer-term view, though, some worry Fitch’s downgrade is the tip of the proverbial iceberg where the US is concerned.

“Continued fiscal expansion/deficits could result in additional downgrades from rating agencies,” says Lawrence Gillum, chief fixed-income strategist for LPL Financial. “So until the US government gets its fiscal house in order, we’re likely going to see additional downgrades.”

That’s the last scenario Washington’s top financiers in Asia want to contemplate. Surging US borrowing costs would slam American consumers’ ability to fuel in Asia’s export-driven economies. And trillions of dollars of state wealth is on the line.

It’s a scenario that chinese leaders have flagged in the past, one more directly than Wen Jiabao, premier from 2003 to 2013.

In 2009, amid the fallout from the 2008 collapse of Lehman Brothers, Wen urged Washington to protect its AAA status.“We have made a huge amount of loans to the United States,” he said. “Of course, we are concerned about the safety of our assets. To be honest, I am a little bit worried.”

Washington, Wen stressed, must “honor its words, stay a credible nation and ensure the safety of Chinese assets.”

Nearly a decade later, in 2018, Cui Tiankai, then China’s ambassador to the US, hinted that Beijing might someday move to reduce Treasuries holdings amid concerns about losses. “We are looking at all options,” he said.

Also in 2018, Fan Gang, a top adviser to China’s central bank, talked publicly about diversifying away from the dollar. “We are a low-income country, but we are a high-wealth country,” Fan said. “We should make better use of capital. Rather than investing in US government debt, it’s better to invest in some real assets.”

The Fitch news demonstrated why there are intensifying efforts to dislodge the dollar from its perch. Efforts are afoot by a loose grouping in nations including China, Russia, Brazil, Saudi Arabia, the United Arab Emirates and others to find a new reserve currency.

Brazil, for example, this year started doing trade in other currencies such as the Chinese yuan and Russian ruble. In April, Brazilian President Luiz Inacio Lula da Silva threw his support behind creating a BRICS monetary unit to be used by members Brazil, Russia, India, China and South Africa.

“Why can’t an institution like the brics bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?” Lula asked. “Who decided that the dollar was the trade currency after the end of gold parity?”

Or as Lula’s Finance Minister Fernando Haddad puts it: “The advantage is to avoid the straitjacket imposed by necessarily having trade operations settled in the currency of a country not involved in the transaction.”

Lula’s backing is music to Xi Jinping’s ears in Beijing. The Chinese leader is steadily ratcheting up efforts to raise the global south ‘s role in geopolitical decision-making. In this, Xi’s third term, he is prioritizing morphing developing countries in the regions from Latin America to Africa to Asia to Oceania into a bigger economic and diplomatic force.

This year, Malaysian Prime Minister Anwar Ibrahim said China is open to discussing the formation of an Asian Monetary Fund, a move that would reduce that International Monetary Fund’s influence in the region.

This would revive a decades-old proposal that most famously reared its head in the late 1990s amid the Asian financial crisis. At the IMF’s annual meeting in September 1997, held in Hong Kong, Asian leaders proposed a bailout fund. This idea was headed off by IMF and US Treasury officials. At the time, Anwar was Malaysia’s finance minister and deputy PM.

Yet the push for an Asian monetary fund comes as China’s currency plays a bigger and bigger role in global trade and finance.

yuan internationalization dovetails with a flurry of new foreign-exchange arrangements that exclude the dollar: France beginning to conduct some transactions in yuan; China and Brazil agreeing to settle trade in yuan and reais; India and Malaysia increasing use of the rupee in bilateral trade; Beijing and Moscow trading in yuan and rubles.

The 10-member Association of Southeast Asian Nations is joining forces to do more regional trade and investment in local currencies, not dollars. Indonesia, ASEAN’s biggest economy, is working with South Korea to ramp up transactions in rupiah and won.

Pakistan is angling to begin paying Russia for oil imports via yuan. The United Arab Emirates is talking with India about doing more non-oil trade in rupees. Argentina recently doubled its currency-swap line with China to roughly $10 billion. It speaks to the rising anti-dollar movement in South America.

Aside from Washington’s fiscal trajectory, Biden’s move to “weaponize” the dollar to punish Russia over Ukraine further eroded faith in the greenback.

“Despite America’s likely opposition, de-dollarization will persist, as most of the non-Western world wants a trading system that does not make them vulnerable to dollar weaponization or hegemony,” says Frank Giustra, co-chairman of International Crisis Group. “It’s no longer a question of if, but when.”

Fitch’s downgrade is another reason for Asia to worry about the dollar – on top of the 3.2 trillion reasons it already had.

Source: Asia Times

Despite recent volatility, the gold market continues to hold firm support at around $1,950 an ounce. However, despite the precious metal’s resilient strength, one analyst says something more is needed to drive the precious metal to record high.

In an interview with Kitco News, John LaForge, head of real asset strategy for Wells Fargo Investment Institute, said that gold and silver have been underperforming general commodities in a broad neutral trading range for the last three years. He added that the precious metal market is stuck as investors continue to focus on tightening U.S. monetary policies and the sharp drop in U.S. money supply.

However, LaForge added that with the Federal Reserve nearing the end of its tightening cycle, both gold and silver could be on the cusp of a long-term bull market as part of the larger commodity super-cycle. He said that it’s only a matter of time before the U.S. central bank starts pumping money back into financial markets to keep the economy from slipping into a recession.

“If we do get this jump back up in Money supply and again and investors start to worry that we are printing too many of these little pieces of paper, we will finally see that long-term run in gold and silver. I would expect that rally to last for three years,” he said.

LaForge added that it wouldn’t take a significant rise in the money supply nor a major shift in U.S. monetary policy to support gold prices at record highs. He added that the market is already sensitive to the government’s massive deficit spending.

The comments come as the U.S. deficit has surged by more than $1 trillion in the last two months since the U.S. government resolved its debt ceiling crisis in early June. LaForge said he expects the deficit to be a significant talking point ahead of the November 2024 elections.

“The more politicians talk about deficit spending, the more people will realize just how unstainable this environment is,” he said. “Where do you go when people start losing confidence in their currency and want to preserve their wealth and purchasing power?”

LaForge said that as the November election approaches, the U.S. could face a similar situation that sparked a crisis of faith in the U.K. bond market last year. The British bond market saw a significant meltdown in October after the then-newly-minted Prime Minister Liz Truss released a mini-budget that proposed the nation’s biggest tax cuts in 50 years.

Truss lasted six weeks as the Prime Minister and the Bank of England had to support the bond market.

Another potential piece to the gold rally is a further deterioration in the U.S. economy. He added that the Federal Reserve could be forced to expand its balance sheet as smaller regional banks continue to feel the pressure of a weakening economy, rising corporate bankruptcies and tighter financial market conditions due to rising interest rates.

“I don’t think it will take much to wake people up to how fragile the economy actually is. There are a lot of potential little triggers that could create a big move in the market,” he said.

Looking at gold and silver‘s technical outlook, LaForge said that despite the long-term consolidation, the precious metal is in a good place to capitalize on any market uncertainty.

“The only thing that’s really disappointing with gold and silver now, frankly, is that they’re not breaking out to the upside,” he said. “They don’t look bad. They’re just going sideways, waiting for a trigger.”

While LaForge is bullish on gold and silver as investment demand is expected to pick up, he explained that the fundamental supply and demand picture will keep prices elevated long-term.

He noted that even if the U.S. slips into a recession, impacting demand for gold, particularly silver, dwindling supply will keep prices well supported.

“Ten years ago, broader commodities saw significantly higher prices, and everyone was out looking for deposits and finding them. The market became oversupplied, and prices have suffered. Fast forward ten years later, after years of weak prices, there is no supply left,” he said. “Gold and silver have two of the best-looking supply growth charts of any commodity, meaning there’s no growth there. So should not take much in demand to support prices at elevated levels.”

Source: Kitco

A $2.6 billion deal announced last week has set the stage for a potentially landmark shift in the metal and mining investment landscape: the arrival of Saudi Arabia as a pivotal player.

The agreement with Vale SA gives the kingdom a 10% slice in one of the world’s crucial suppliers of nickel and copper — essential metals needed to decarbonize. It’s also held other talks, including with Barrick Gold Corp. about investing in a big Pakistan copper mine, according to people familiar with the matter. Speaking privately, executives at top miners said the value of Thursday’s deal made clear that the Saudis are ready to splash cash around.

The move comes as the question of who controls the commodities needed to both sustain and decarbonize the world’s economies has turned into a global flashpoint, jumping to the top of agendas in the US and Europe.

China has for years been the dominant buyer and a key source of funding, as it sought to secure supply for its rapid industrialization. But as tensions with the West have mounted, the mining industry is now facing increased pressure to look elsewhere.

Saudi Arabia is seeking to take minority stakes in global mining assets that will over time help provide access to supplies of strategic minerals. The country also is looking to build a metals-processing industry that could in turn make it more attractive for international miners to exploit its mineral deposits — a central pillar of Saudi efforts to diversify the economy away from oil.

The kingdom has invested heavily into industrial and financial assets and even turned the world of sport upside down by essentially buying the game of professional golf and piling into soccer. However, the Vale deal announced last week is its first major foray into mining. Manara Minerals, a new venture between the kingdom’s sovereign wealth fund and state mining company, will get a stake in Vale’s base metals business, giving Saudi Arabia an interest in mines from Indonesia to Canada producing copper, nickel and other industrial metals.

For western producers, the kingdom offers access to deep pools of capital, which are appealing as Chinese funds become less politically palatable, but also as some institutional investors have turned less comfortable with mining over environmental concerns.

Investors from the region — Qatar is already a major backer of Glencore Plc — are now likely to become one of the most important financiers for the capital hungry sector, according to serial mine builder Robert Friedland, who spent the last few years developing one of the world’s biggest copper operations, in the Democratic Republic of Congo, with the help of Chinese funds.

“Now, probably, the largest supply of capital to the mining industry will come from the Middle East,” he said in an interview last month.

But Saudi Arabia offers something else beyond cold cash: political backing for companies looking to expand into the Muslim world as deposits in more traditional jurisdictions are depleted.

Canada’s Barrick has been in talks with the Public Investment Fund about a potential stake in its Reko Diq copper project in Pakistan, which is a relatively untouched frontier for the international mining industry, according to people familiar with the matter. Bringing the Saudis on board would not only ease Barrick’s funding burden, but also introduce a partner that has significant political influence in Pakistan, the people said.

Spokespeople for the PIF and Barrick did not comment.

Saudi Arabia’s deep pockets may also present some challenges for the biggest producers who are looking for deals of their own. Keen to get more exposure to copper and nickel, miners have started writing the biggest checks in more than a decade. BHP Group and Rio Tinto Group — the two largest — have just completed multi-billion dollar deals to grow in copper, while Glencore Plc tried to buy Teck Resources Ltd.

For years, the big producers have found themselves repeatedly outbid by Chinese companies when it comes to buying mines. China’s state-owned metal and mining companies have been willing to pay valuations that western firms simply couldn’t match. Saudi Arabia now seems willing to do the same, potentially putting some deals beyond the reach of the industry’s traditional buyers.

Executives at two of the biggest mining companies, which have spent years assessing base metal assets such as those owned by Vale, said privately that they were surprised by the price tag in last week’s deal, which valued the unit at $26 billion (RBC Capital Markets said it was worth about $21 billion.)

Still, unlike Chinese companies, Saudi Arabia is currently more interested in securing stakes — guaranteeing future supply of critical minerals — rather than buying outright and then operating the assets.

Saudi Arabia set down a marker earlier this year when it announced the new firm to invest in mining assets globally, with $3.2 billion for initial investments. The country holds an annual mining conference, which this year featured the CEO of the world’s biggest mining company, BHP’s Mike Henry, as well as the chairman of no. 2 producer Rio Tinto — a major step up from past speakers. CEOs from other top miners are expected to attend next year.

For mining companies looking for funds, the US and Canadian governments’ recent crackdown on Chinese investment in key metals companies has changed the investment landscape. That’s given an opening to Middle Eastern countries like Saudi Arabia to fill the gap.

“Everything’s changed,” said Friedland.

“The American government has an ‘ABC’ policy: Anything But China. So the American government instead goes to rulers in the Middle East and says, “You should be giving the African people an alternative for financing mines in Africa. Recycle some of those petro-dollars.”

Source: Mining.com