Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
In the past two years, the trend of de-dollarization has dominated global financial markets and supported gold prices to record highs. However, a research report released by the New York Federal Reserve last week pointed out that although global central banks’ holdings of dollar assets decreased by 7% from 2015 to 2021, this was only the behavior of a small number of countries, and de-dollarization has not evolved into a large-scale global trend.
Furthermore, regarding the topic of central banks’ large-scale gold purchases in recent years, analysts from the New York Fed indicated that while gold is a good alternative asset to the dollar for some countries, it cannot completely replace the dollar’s position in central bank foreign reserves.
Returning to the topic of dollar assets, the New York Fed stated that the so-called de-dollarization trend is primarily driven by India and China. These two countries alone contributed approximately 2.9 percentage points of the 7% decline in central bank dollar assets. However, this data is somewhat outdated. The latest data from the U.S. Treasury shows that in the first three months of 2024, China sold $53.3 billion in U.S. Treasuries and agency bonds. Additionally, Russia contributed 1.8% to the decline.
According to analysts, during the 2015-2021 period, the Swiss National Bank also reduced its dollar assets and contributed 1.8% to the decline. However, this European country reduced its dollar assets due to Switzerland’s monetary policy and an increase in euro holdings, rather than a decreased preference for dollar assets.
Analysts at the New York Fed also discussed the role of gold in the global market.
Some countries view this precious metal as an alternative for the dollar, which has led to unprecedented central bank demand in the gold market over the past two years. Data shows that official gold holdings grew by more than 1,000 tons in both 2022 and 2023. According to the data from the World Gold Council (WGC), global central banks’ net gold demand totaled 290 tons in the first quarter of 2024, setting a historical record for the first quarter.
As for the underlying reasons, the outbreak of the Russia-Ukraine war in 2022 and the subsequent decision by the G7 to freeze the Russian central bank’s foreign exchange reserves have highlighted gold’s role in evading sanctions as a significant driving factor behind official gold purchases.
However, the New York Fed indicated that although central banks have been purchasing gold at a significant rate, it is mainly the behavior of a small number of countries. Data from the International Monetary Fund (IMF) at the country level shows that the majority of the growth in official gold holdings comes from a few central banks. Since 2009, more than half of the reported growth in gold holdings has come from China and Russia, with another quarter coming from emerging market central banks such as Turkey, India, Kazakhstan, Uzbekistan, and Thailand.
Moreover, gold as a reserve asset has its limitations, including not yielding interest, being inconvenient for transactions, and incurring high transportation, storage, and security costs.
