Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
Countries participating in the mBridge project, a new cross-border payment system, have been stockpiling gold, significantly contributing to the gold bull market over the past two years. Although it’s difficult to predict when and how the global dollar standard might unravel, establishing a non-dollar payment system (mBridge) and actively stockpiling gold as an alternative to U.S. Treasury bonds for international reserves is a potent de-dollarization strategy.
mBridge, or the Multilateral Central Bank Digital Currency Bridge, caters to wholesale central bank digital currencies (CBDC) and is an international payment initiative. Currently, it has five official members: Thailand, China, Hong Kong, Saudi Arabia, and the UAE, along with over 30 observer countries. On June 5, 2024, the Hong Kong Monetary Authority announced that the mBridge project had entered the Minimum Viable Product (MVP) stage.
Crucially, the mBridge Ledger, on which the system is based, is developed by China’s Digital Currency Research Institute and regulated by China, making it impervious to Western sanctions.
Gold prices are determined by global capital flows. Transnational trade statistics indicate that since 2022, the East has surpassed the West as the dominant player in the gold market. Additionally, mBridge members’ attitudes toward gold prices have shifted; they are no longer price-sensitive. Instead, due to strong demand, they have refrained from selling as prices rise and have become catalysts for price increases.
While official gold import and export statistics represent private flows, they can also reflect central bank activities. Following the freezing of some of Russia’s foreign exchange reserves, China and Saudi Arabia’s central banks significantly increased their gold purchases, alongside a surge in private demand from China and Thailand. Trade data shows that the dominant players in the gold market are all mBridge members, including China, Saudi Arabia, Thailand, and Hong Kong. The UAE’s statistics are delayed by several years and can be misleading due to smuggling from India.
In addition to obvious global gold flows, official gold reserves in Thailand, the UAE, China, and Saudi Arabia have increased in recent years, even excluding covert purchases by the latter two. Thailand’s central bank gold reserves have risen from 84 tons in 2008 to 235 tons, and the UAE’s official gold assets have increased from zero to 75 tons. The gold reserves of the People’s Bank of China and the Saudi Arabian Monetary Authority greatly exceed publicly disclosed levels.
In May of this year, China’s central bank ended its streak of 18 consecutive months of increasing gold reserves; since then, reserves have remained at 72.8 million ounces. However, experts believe that despite high gold prices, gold still offers significant advantages in risk aversion, inflation resistance, and value preservation, suggesting that China’s trend of increasing gold reserves will likely continue.
mBridge members, as current account surplus countries, have been increasing their gold reserves in recent years, storing trade surpluses in gold rather than U.S. bonds, a practice known as “Gold Recycling.” The combination of gold and mBridge may weaken the dollar’s status. Considering mBridge members’ roles in the gold market and their de-dollarization plans, mBridge appears poised for success. Although the decline of the dollar is not an overnight process, its gradual weakening warrants ongoing attention.
According to calculations, gold’s share of international reserves has risen from 10% in 2014 to 19%, while the dollar’s share decreased from 62% in 2001 to 48% by March this year. With geopolitical tensions ongoing, mBridge members have strong incentives for de-dollarization, a trend likely to continue. We cannot even rule out Western investors participating in driving gold prices higher.
