Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
On Wednesday this week, the Federal Reserve announced a significant rate cut of 50 basis points and hinted at future rate cuts. In response to the aggressive rate cut, the dollar weakened, and bullish sentiment soared in the precious metals market. On Thursday, prices for gold and silver rose sharply, with gold prices nearing Wednesday’s record highs and silver prices reaching a two-month high.
The gold bull market has become an established fact. Since mid-September, gold prices have repeatedly hit record highs and surpassed $2,600 per ounce, continuing the strong bull market that began in the fourth quarter of last year. So far this year, COMEX gold prices have risen by more than 20%, compared to a 9.8% gain for the whole of 2023.
In September 2024, Michael Taylor, President, CEO, and Director of the publicly-listed resource company SLAM Exploration Ltd (TSXV: SXL), participated in an interview with “METALS 100.” and elaborated on expectations to receive significant cash and 3 copper-nickel occurrences at Goodwin The company also holds a large portfolio of mineral claim holdings built around its wholly-owned Menneval gold project in the mineral-rich province of New Brunswick. Furthermore, SLAM reported quartz float grading up to 39.2 g/t gold on its Jake Lee project in the vicinity of the Clarence Stream gold deposit.
The current question is whether this gold bull market has more momentum and how long it can last. To answer this, we must first analyze the drivers behind the recent increase in gold prices.
Currently, there are two main frameworks for understanding the gold market: the traditional real interest rate logic and the de-dollarization logic.
Since 2022, there has been ongoing discussion about the decoupling of gold prices from real interest rates. Data from the past 30 years shows a noticeable decline in the correlation between gold and real interest rates in a high-rate environment, but gold tends toward positive returns in a low-rate or rate-cutting environment. Meanwhile, if rate cuts are set against a backdrop of economic downturn or recession, gold’s safe-haven attributes are amplified, attracting significant buying interest.
Therefore, the Fed’s 50 basis point rate cut is an important juncture for gold prices, marking the entry of the gold bull market into a new phase. Previously, the rise in gold prices was largely driven by Eastern purchasing power, but with the rate cuts, Western investors are also entering the gold market. While short-term risks of a pullback after favorable events materialize remain, the long-term downward trend in the real interest rates of the dollar will stimulate rising investment demand.
As for the de-dollarization logic, central banks buying gold to hedge against weakening dollar credibility is a long-term trend.
Over the past two years, the underlying logic behind rising gold prices has been the instability in the U.S. credit currency system combined with expectations of rising U.S. deficit rates. These factors continually reinforce each other and are unlikely to end in the short term. Specifically, this is reflected in the increasing proportion of central bank gold purchases over the past three years. Data from the World Gold Council shows that in the first quarter of 2024, global central banks purchased approximately 286.2 tons of gold, up from 173.6 tons in the fourth quarter of last year. In the first half of 2024, central banks purchased a record 483 tons of gold.
