BRIC is the acronym for Brazil, Russia, India, and China. The term was specifically coined to refer to these fast-growing emerging economies and by implication, their mutual benefits by forming alliances with each other. The growth of the BRIC countries has implications for the gold market.

Jim O’Neill, Goldman Sachs’ head of economic research, came up with the term. It was quickly adopted by other individuals and institutions to the extent that financial news sources are now using “BRIC” with little or no explanation.

In a 2008 summit among representatives from the four nations, the event was merely called BRIC Summit. Jim O’Neill and other economists have pointed out that aside from rapidly developing; the four nations also demonstrate a great deal of potential. BRIC accounts for two-fifths of the world’s population and about a quarter of its land.

The BRIC thesis was first formally recognized in 2003 in the paper “Dreaming with BRICs: The Path to 2050”. In his report, O’Neill has stated that the four large economies have the capability to become the dominant economic powers. Together, they can become the dominant power globally by 2050. Goldman Sachs predicted that by a few decades from now, raw materials will be dominated by Brazil (iron and soy), Russia (petro products), India (manufactured goods), and China (manufactured goods). The thesis provides practical reasons for developed and other developing to create trading partnerships with BRIC.

Goldman Sachs predicts that by 2050, citizens of BRIC countries (except for Russia) will be poorer than average compared to those living in developed countries. However, BRIC countries would make up the largest share of the global economy. It is being postulated that BRIC currencies can increase by as much as 300%. Succeeding reports from Goldman Sachs has indicated that the trend is being amplified rather than negated. It should be noted that the prediction are based on economic potential but they are not predicted based on a best case scenario either. The report assumes a continued implementation of policies that encourage economic growth.

In view of Goldman Sachs’ popularization, other investment firms have adopted the BRIC term to refer to emerging markets. Brazil, Russia, India, and China are expected to expand rapidly and offer many investment opportunities. There is a tendency, however, to use BRIC as a term to refer to emerging markets in general. Sometimes, it is used to symbolize regions rather than countries. BRIC can refer to Latin America, Eastern Europe, South Asia, and East Asia respectively.

BRIC and Gold

What are the links between the BRIC countries and gold? First of all, the economic development of the bloc may undermine the U.S. dollar, supporting the yellow metal. These countries account for about 30 percent of global GDP. Some forecasts even argue that they may relatively soon become dominant economic powers capable to create an alternative reserve currency to the greenback and challenge the American dominance. It would be a positive scenario for gold, which is often negatively correlated with the U.S. dollar, especially if the BRIC countries re-monetized gold for trade in goods, creating a new gold standard, as some analysts believe.

Although that vision sounds nice, the reality is not so rosy. Actually, the BRIC countries have lately had a hard time in the 2010s and their economic performance – except perhaps China – have been disappointing (think about the recent recessions in Russia and Brazil). Some analysts started even to denote the acronym as “Bloody Ridiculous Investment Concept.” And their plans to challenge the status of the U.S. dollar have not been realized. Hence, although it would be unwise to write off the BRIC countries, especially that they rebounded in 2017, the opinions about their economic bloom and impact on the gold market were exaggerated. The yellow metal would, thus, remain linked to the U.S. dollar rather to the BRIC currencies.

Another interesting link between the BRIC countries and gold is that the central banks and citizens of these countries are major buyers of the yellow metal as either the reserve asset or as gold jewelry. However, as a driver of the gold prices, investment demand is much more important that consumption demand or central banks’ purchases.

We encourage you to learn more about the gold market – not only about the link between the BRIC countries and the yellow metal, but also how to successfully use gold as an investment and how to profitably trade it. Great way to start is to sign up for our gold newsletter today. It's free and if you don’t like it, you can easily unsubscribe.