China's De-dollarizaton Helped Drive the Gold Bull Market Part 2

Find part one here.

An unprecedented change in oil sale policy opened 2024, as Saudia Arabia and the UAE officially moved away from solely trading oil in dollars. We reported:

The recent move by Saudi Arabia and the UAE to conduct oil trade in other currencies marks a significant shift away from exclusive US dollar use. The petrodollar arrangement has been the foundation of dollar demand for half a century, so this change in policy not only fuels de-dollarization but the global power shift. The growing influence of BRICS—demographically, economically, geopolitically, and militarily—threatens US dollar hegemony as trade integrates outside of dollar and SWIFT systems. With the UAE officially ending dollar trade and the Sino/Russian finger being placed in Iraq’s new oil field pie, one may predict that were OPEC to fully exit the petrodollar, dollars hoarded globally to buy oil could be dumped on a massive scale, severely damaging the US economy.

As talk of a gold-backed BRICS currency was widely circulating, we explored what this could mean for investors:

Global discussions surrounding the objective of a dollar-alternative indicate nations on the periphery of the US are growing tired of a politicized currency. With global trust waning, nations are once again looking to real, value-backed money rather than the fiat of imperial regimes. Fiat controlled by the financial system have issues even in the modern world, with instances of arbitrage and manipulation of FX rates causing instability in emerging markets.

When one considers not only the growing incidences of economic sanctions of one nation or region onto another, but sanctions on individuals by their governments, such as happened with the Canadian truckers, it’s hardly surprising that this discontent is seeping into western nations as well. Despite these points, a global shift into a new reserve currency has historically taken anywhere from 50 to 100 years, and it is yet to be seen if the rapidity of technological innovation could be an accelerating factor.

In any case, further de-dollarization would introduce new trading pairs and alter FX rates with increasing volatility. Investors will need to adapt their strategies to the changing landscape by diversifying currency exposure through assets denominated in non-dollar currencies. Additionally, commodities and precious metals provide a vital hedge against currency risks.

A key focus of the October 2024 summit was developing alternatives to Western-dominated financial systems, including a new payment system called BRICS Pay, and increased use of local currencies in trade.

Geo-economic analyst Simon Hunt recently introduced a compelling solution to address BRICS payment issues, which highlights the importance of China’s (and Russia’s) gold reserves to credibly challenge the dollar’s dominance.

Hunt's proposal suggests leveraging China's and Russia's substantial gold reserves to create a new payment system that would use the Hong Kong dollar (HK$) as the key currency for global trade. Hunt's plan involves converting USD deposits from Chinese exporters in Hong Kong into HK$ and eventually de-pegging the HK$ from the USD while gradually developing Hong Kong into a major global financial hub that could rival New York and London. This gold-backed HK$ could then be used globally for international trade and investments. This approach could attract global funds to Chinese equities and support China's economic recovery. Over the next five years, it could lay the groundwork for a new gold-backed BRICS currency and reshape global financial dynamics.

In November 2024, Chinese officials announced the discovery of a potentially record-breaking gold deposit in the Wangu gold field of Hunan province. Our analysis of whether this could impact global gold markets was as follows: