Gold has a long history of being used as a safe haven asset during times of uncertainty. This is because gold is not subject to government or financial institution risk, and it has a limited supply, which makes it a valuable asset. Some compare Bitcoin to gold as a safe haven but we will leave that conversation for another day.

The current geopolitical climate is very shaky at best, with the ongoing conflict in Ukraine and the rising tensions between the West and Russia. This uncertainty is likely to drive investors towards safe haven assets like gold.

Lets focus on the BRICS nations, that stands for Brazil, Russia, India, China and South Africa, with a number of other countries wanting to join. They are a group of five major emerging economies that have gained significant importance in the global economic landscape. It was formed in 2009 and collectively represent a substantial portion of the world’s population, land area, and GDP.

Their emergence as an economic bloc has captured the attention of investors and policymakers worldwide due to their potential to shape global economic trends and influence financial markets. The private equity players have been dipping their toe in these regions for years and it isn’t slowing down.

This is partially due to the BRICS nations demonstrating remarkable economic growth over the past few decades which propelled them to become key players in the world economy. Collectively, these countries hold considerable sway in international trade, investment flows, and commodity markets. Their large and diverse consumer bases offer substantial opportunities for the private equity sector as companies seeks to exapnd globally.

A strategic move was the establishment of the New Development Bank (NDB), which was created to fund infrastructure and development projects, enhancing their economic cooperation and influence across all BRICS nations.

One of the key factors of the BRICS Nations is that they recognize the importance of holding strategic reserves of assets like gold. Gold is viewed as a symbol of economic strength and stability, and therefore, these countries have been actively increasing their gold holdings in recent years. Accumulating gold reserves provides them with a safeguard against currency fluctuations, economic uncertainties, and geopolitical risks.

Geopolitical risks have a direct impact on the financial and economic stability of countries, and the BRICS nations are no exception. Geopolitical tensions can lead to capital flight, currency depreciation, and financial market volatility, making it essential for these nations to adopt policies to safeguard their economies.

The BRICS nations have been discussing the possibility of creating a new currency that would be backed by gold. This would be a way for the BRICS nations to reduce their reliance on the US dollar, which is currently the world’s reserve currency.

In 2022 the buzz began again as a push emerged for the BRICS nations to create a currency backed by gold. This is due in part to the ongoing conflict in Ukraine, which has led to increased uncertainty in the global financial markets.

The issue and challenges with this plan is that this is a consortium of different countries with different levels of economic development and different monetary policies. This may make it difficult for them to agree on the terms of a new currency.

If they could overcome that hurdles then the benefits could magnitude, starting with the reduction of reliance on the US dollar, it could create enhanced stability for trade and investment and it could protect the BRICS nations economies from financial crisis.

They are not close to crossing that bridge, although a major effort is being brought forth, in the meanwhile let’s take a look at what may be in the cards.

With the geopolitical unrest in front of us, this has caused investors to lose confidence in certain currencies and assets. BRICS nations may diversify their foreign exchange reserves away from traditional reserve currencies, such as the US dollar, by increasing their gold holdings. This could provide a big boost to the commodity and Forex markets and bring various deal flow opportunities from the private equity sector to the forefront. Gold being considered a safe haven asset makes it an attractive option for central banks and sovereign wealth funds to reduce dependence on volatile currencies.

A factor to consider that would create various opportunities in the private equity arena is not IF but When BRICS nations begin to strategically acquire gold to hedge against potential global uncertainties arising from geopolitical conflicts. These nations holding gold reserves can act as a buffer during periods of financial instability, serving as a counterbalance to other assets that may be negatively affected by geopolitical events.

Some of the BRICS nations have significant gold mining operations and during times of geopolitical unrest, they may begin to throw their support behind these domestic operations, which again could present various opportunities in these areas.

These are some serious facts to consider , the BRICS nations’ increasing prominence in the global economy has drawn attention to their economic policies and decisions, including their approach to gold reserves. As geopolitical uncertainties persist, these countries have recognized the value of holding gold as a strategic asset to protect against financial turbulence and currency risks.

Various global companies and private equity players have understood this, which is allowing them to position themselves to capture opportunities. While BRICS nations individual policies and motivations for acquiring gold may vary, the collective actions of the BRICS nations play a significant role in shaping the dynamics of the global gold market and reinforcing gold’s status as a safe haven asset in times of geopolitical unrest.

There is an old saying “Where there is smoke there is fire” , in the case of the BRICS nations and opportunities that may be there, well due diligence is key but also forward looking managers will prove to be essential when jumping into this arena.

Additional insight:

Learn more about the Gold Standard here.