Jakarta, CNBC Indonesia – The echo of dedollarization is getting stronger, especially after BRICS took maneuvers to distance the dominance of the United States (US) dollar in the world. BRICS is an alliance consisting of Brazil, Russia, India, China and South Africa.
The presence of the alliance's banking assistance agency, the New Development Bank (NPB), is tasked with increasing its fundraising and local currency loans. This step was taken to reduce the risk of the impact of foreign exchange fluctuations on dedollarization steps.
This alliance became even hotter when several Middle Eastern countries, such as Saudi Arabia, the United Arab Emirates, Egypt, Iran and Ethiopia joined it. Together they agreed to reduce dependence on Uncle Sam's country's dollar.
This maneuver is said to have an impact on several investment assets that are currently favored by investors, namely gold. As is known, the correlation or relationship between gold and the US dollar is often reversed. When the value of the US dollar weakens, the price of gold actually increases. Vice versa.
Moreover, dedollarization is actually expected to reduce dependence on the US dollar. It means, If this condition continues, then demand for US dollars will certainly decrease. Economic law also works, if demand decreases, the value of the US dollar will weaken further.
So it is not surprising that gold is currently increasingly being sought after by many parties and is strengthening world gold prices. Including by central banks in the world.
The proof is, at the end of last year, central banks in the world continued to build up their gold reserves. Central bank gold purchases in the world reached 44 tonnes in November 2023, an increase compared to October which reached 42 tonnes.
Central bank purchases in the November 2023 period are still dominated by banks which have been regular buyers throughout this year. The main buyers are all from emerging markets. Turkey's Central Bank added the most gold this month with 25 tons, followed by the National Bank of Poland and the People's Bank of China.
Money Market Analyst, Ariston Tjendra, also admitted that the United States currency is relied on in world trade, so the dependence of various countries on the US dollar is very large.
“Based on data from the Bank for International Settlement, the US dollar dominates around 88% of global foreign exchange (forex) transactions,” said Ariston to CNBC Indonesia, Tuesday (16/01/2024).
He also said that future fluctuations in the US dollar will still have an impact on world investors' favorite assets such as gold. Ariston said that the policies of the US central bank, The Fed, influenced the strength of its currency which then had an impact on the price of gold. Moreover, world gold prices are still valued in US dollars. As a result, when the US dollar weakens, the price of gold strengthens and vice versa.
Gold prices are also often affected by its status as a safe asset. When market concerns arise about global conditions, market players begin to turn to gold, which drives up global gold prices.
For your information, at the beginning of this year the global gold price remained above the US$ 2000 level. This implies that market players are still worried about the global economic condition which is full of uncertainty, especially coupled with ongoing geopolitical tensions or war.
“Domestic gold prices usually use global gold prices as a benchmark. So if global gold prices rise, domestic gold prices also rise,” explained Ariston.
[Gambas:Video CNBC]
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