Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
Last week, gold, the US stock market, and Bitcoin prices frequently hit historical highs. The spot gold price rose from $2119 per ounce on Monday to $2195.23 per ounce during Friday trading. Three-quarters of the gold prices in major developed and emerging market currencies hit 50-year highs.
According to Kitco News’ weekly gold survey, the vast majority of respondents on both Wall Street and Main Street predict that gold prices will rise or at least consolidate next week.
Mark Leibovit, publisher of VR Metals/Resource Letter, succinctly summarized the outlook for gold as a “Bull”. However, Christopher Vecchio, Head of Futures and Forex at Tastylive.com, predicted “Up”, advising buy the dip until the trend changes, and there is no indication that gold’s trend is going to change anytime soon.
The surge in gold prices seems peculiar as gold stocks have not risen, and silver has also not participated in the recent rally. Additionally, the gold ETFs, which have had a significant impact on the price of gold over the past few years, have experienced continuous outflows in recent months. The US dollar and real yields have also remained stable.
The largest holding of gold is the jewelry industry, followed by private investment, including ETFs, gold bars and coins, and then central bank reserves. By process of elimination, it appears that official institutions, namely central banks worldwide, are the driving force behind the recent surge in gold prices.
Sean Lusk, co-director of commercial hedging at Walsh Trading, believes that all indications point to this rise being driven by sovereign purchases. China’s continuous increase in gold reserves quietly supports the gold market. Moreover, not only China but also many other central banks are buying gold to bolster their currencies, and this trend is ongoing. Against the backdrop of significant global uncertainty, the simultaneous historical highs in the stock market and gold make it difficult not to analyze the role of central banks in this trend.
Over the past six months, China, Germany, and Turkey have been the largest sovereign buyers of gold, with China’s gold purchases likely far exceeding official data.
As for why central banks continue to increase their gold reserves or “de-dollarize,” aside from the weaponization of the US dollar during the Russia-Ukraine war serving as a warning to other countries, the US fiscal deficit and the potential devaluation of the US dollar in the future are also important factors. Based on purchasing power parity, the US dollar is structurally overvalued relative to major emerging market currencies and could depreciate significantly in the coming years.
Federal Reserve Chairman Powell recently reiterated the Fed’s intention to cut interest rates this year, seemingly not very concerned about inflation. Similarly, gold ETF investors appear unconcerned about inflation or the risk of dollar devaluation. However, central banks of other countries hold an entirely different view and are increasing their gold holdings as a form of display against these concerns.
