Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
On Wednesday, the spot gold price hit a new historical high, reaching $2,313.50 per ounce. Fueled by the latest economic data, gold prices have been on the rise for a week, with geopolitical tensions in the Middle East and expectations of a Fed rate cut in the second half of the year providing momentum for the gold market.
Moreover, experts widely believe that with the fundamental assumption of a Fed rate cut this year, there is room for further increase in gold prices. Geopolitical factors and central bank gold purchases worldwide provide support for gold prices, while the Fed’s rate cuts serve as the driving force, benefiting not only gold but also related stocks.
However, the market often loses focus on the broader picture of the Fed’s expected rate cut this year, concentrating too much on the “detail” of when the first rate cut will begin, leading to fluctuations in the gold market. The rationale behind the Fed’s necessary policy shift this year is straightforward: the burden of servicing federal debt at high interest rate levels has become too heavy. Therefore, the conclusion is that the Fed must pivot, and other central banks will likely follow suit in cutting rates.
On Wednesday, Federal Reserve Chairman Powell, speaking at the Stanford Graduate School of Business, indicated that the Fed is not eager to loosen monetary policy. He stated that it would be inappropriate to lower policy rates before ensuring that inflation is consistently trending towards the 2% target, especially since the U.S. economy remains robust, allowing for more time to await further data.
However, Powell also revealed that if the economy aligns with their expectations, most Federal Open Market Committee (FOMC) participants believe that a rate cut at some point in 2024 would be appropriate. Bart Melek, Global Head of Commodity Strategy at TD Securities, noted this as positive news for gold, as it implies a rate cut by the Fed before achieving the inflation target.
As of Wednesday, the FedWatch tool from the CME Group (NASDAQ: CME) showed a high probability of 98.8% for the Fed to keep rates unchanged in May, while the probability of a rate cut to the 5%-5.25% range in June was 61.7%.
With gold prices now at historical highs, the timing of when gold stocks, which have not yet caught up in value, will start to rally becomes the most pressing concern for market participants. The historical rarity of the price difference between gold stocks and gold itself presents a unique buying opportunity for gold stock investors. Experts generally believe the optimal entry point will be before the Fed’s initial rate cut. Regardless, valuation regression is a fundamental principle, and undervalued gold stocks are poised for a rapid upward trend.
