Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
Discussions on de-dollarisation have been intense in recent years, especially after the outbreak of the Russo-Ukrainian war in 2022. According to a report from Atlantic Council on monitoring dollar dominance, the dollar’s share of global reserves falls to 58 per cent in 2024 from 72 per cent in 2002, a 14 per cent drop.
The key factor behind the trend towards de-dollarisation is the growth and development of the BRICS countries, according to the report. Over the past 24 months, the member countries of BRICS (comprising Brazil, Russia, India, China and South Africa, with the recent addition of Egypt, Ethiopia, Iran and the United Arab Emirates, and with Saudi Arabia considering joining) have been aggressively promoting the use of their national currencies in trade and transactions, with the renminbi having the greatest potential to compete with the US dollar as a trade and reserve currency.
And one commodity that has gained universal favour thanks to the efforts of the BRICS countries is gold. Emerging markets have driven the recent surge in gold purchases, the report says.
Since 2018, all BRICS members have been increasing their gold holdings at a faster rate than the rest of the world, despite the high price of gold. Gold’s share of international reserve portfolios began to rise in 2019 and accelerated after the outbreak of the pandemic, rising from about 10 per cent to nearly 16 per cent currently. Central banks now collectively hold more than 35,000 tonnes of gold, close to 20% of all gold ever mined.
The reasons why emerging market central banks are buying gold include: the precious metal offers options in the face of geopolitical risk; provides a hedge against inflation; and is considered a safe haven asset, especially with the onset of a broader recession, as gold has been able to hold its value for centuries and does not carry any credit risk. In addition to this, gold also acts as a hedge against fluctuations in the value of the US dollar.
Central banks have raised their demand for gold since 2022, coinciding with Russia’s invasion of Ukraine, soaring global inflation, a stronger dollar and heightened geopolitical uncertainty.
Nearly a third of central banks plan to increase their gold reserves in 2024, the report said. While the euro was once considered a competitor to the dollar’s international role, sanctions against Russia in 2022 signalled to markets that the euro faces similar geopolitical risks to the dollar.
As a result, those looking to move away from dollar risk have turned their attention to gold. Because gold can be stored domestically, there is no sanctions risk, and these factors are key reasons behind the further accumulation of gold by some emerging market central banks.
The dollar continues to dominate foreign exchange reserves, trade invoices and global currency transactions, the report said. All potential rivals, including the euro, have limited ability to challenge the dollar in the near future. While China poses the biggest threat to the dollar’s position, the country’s recent woes, including the collapse of the property market, have caused the yuan to lose some of its advantage over the dollar in terms of foreign exchange reserves.
