Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
In 2023, the gold market established a pattern where it would rise on positive news and resist falling on negative news. This trend has continued into 2024. Just last week, the price movement of gold and silver was a reenactment of this tendency. Despite multiple bearish factors, the price of gold successfully held its key support levels and consolidated within the larger uptrend.
Last week, the Federal Reserve maintained its tight monetary policy, keeping the federal funds rate at its highest level in nearly two decades. Moreover, the Fed sent out a clear signal: although this year may see rate cuts, they are not in a hurry to cut rates. By Friday, U.S. employment data — a 353,000 job increase in non-farm employment — far exceeded expectations, dampening expectations for a rate cut.
Market data showed that the probability of a rate cut in the U.S. in March had dropped to only 20%, with expectations for a May rate cut also falling.
Meanwhile, U.S. stock markets continued to rise, with the S&P 500 Index and the Dow Jones Industrial Average reaching new historic highs.
In the face of this series of bearish factors, the price of gold futures in April rose nearly 1% last week, testing near the resistance level of $2,500 an ounce.
Why is the gold market so strong? The answer, according to the World Gold Council’s (WGC) end-of-year/quarterly global trends report, is the very strong demand for physical gold in the market.
The report stated that global gold demand in 2023 reached a record 4,899 tonnes, driven by central bank purchases and the over-the-counter (OTC) market. Excluding the OTC market, last year’s gold demand fell by 5% to 4,448 tonnes compared to 2022.
Analysts in the report said that the double-digit return of the gold price in U.S. dollars implies very strong demand from investors in non-transparent OTC markets and other categories. At the same time, central banks bought 1,037 tonnes of gold last year, only 45 tonnes short of the record set in 2022. In the past two years, central bank gold demand is nearly twice the average level of the past decade.
Nicky Shiels, head of metal strategy at MKS PAMP, analyzed the WGC’s research report and came to some interesting conclusions: the scale of central bank gold purchases is 25 times that of investor capital outflows. She mentioned that the net inflow of 32 million ounces of gold (33.3 million from central banks minus 1.4 million outflows from investors) is the fourth-highest since the start of this data collection, which aligns with the rise in gold prices in 2023.
Although it is unlikely that central banks will buy more than 1,000 tonnes of gold for the third consecutive year, the WGC expects this demand to continue at the ten-year average. The reason, analysts say, is that central banks’ needs for dollar diversification and asset diversification remain unchanged and are not likely to change in the short term.
Looking ahead over the next 11 months, market analysts surveyed by the London Bullion Market Association (LBMA) expect gold prices to continue to reach historical highs this year, with an average price of $2,059 an ounce, up 6.1% from last year’s average price.
