Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
On Monday, gold, which has been favored by the market, suddenly experienced a sharp drop, with gold prices marking the largest single-day decline in a year, and silver prices plummeting over 4% at one point. Nevertheless, amid the significant downward spiral of precious metal prices, Ray Dalio, the founder of Bridgewater Associates, stepped up to support gold, stating that compared to other debt-backed currencies, gold is one of the few “good monies” that can be used to hedge debt and inflation risks.
Analysts believe that the easing of tensions in the Middle East may be the main trigger for the adjustment in precious metal prices. However, even after the adjustment on Monday, the international gold price has risen by over 12% since the beginning of the year, doubling the year-to-date increase of the S&P 500 index (slightly over 5%). Starting from the global asset “gold pit” created by the COVID-19 pandemic in early 2020, the spot gold price has surged by 67%, with an increase of over 30% since the end of October last year.
In comparison to gold, Dalio’s attitude towards the US dollar over the past few years has been quite complex and even worrisome. Last Thursday, he posted on LinkedIn that he would hedge potential debt crises and higher inflation rates by holding gold.
Holding currency is essentially holding a type of debt asset backed by the credit of the country issuing the currency. In other words, when you hold these currencies, you are essentially holding a debt promised to be repaid by the country issuing the currency. Currently, the globally recognized and widely accepted currency is the US dollar.
Unfortunately, the US national debt has surpassed $34.5 trillion, but it is not only a threat to the United States alone. The International Monetary Fund (IMF) recently stated that over the next five years, China and the United States will drive global public debt, predicting that the public debt levels of these two largest global economies could double by 2053. Additionally, as government debt rises, the UK and Italy face significant fiscal risks.
Dalio noted that history and logic indicate that when there are significant risks of debt default or using depreciating currencies to repay debts, the debt and the corresponding currency will lose attractiveness. Debt is a promise to repay, and when a government has excessive debts to repay, its central bank is likely to print money to prevent a major debt crisis by devaluing the currency (i.e., inflation).
In contrast, gold is a non-debt currency, and its price is actually supported by debt default and inflation risks, hence the concept of “good money.” Trustworthy currencies serve as good mediums of exchange and are widely accepted tools for storing wealth. This is why gold has become the third-largest reserve currency for central banks worldwide, surpassing the yen and the yuan, and is also an excellent diversification tool for investors.
The continuous rise in global debt levels is a significant reason why many commodity analysts are bullish on gold, with some institutions even predicting a rise in gold prices to $3,000.
