Two months ago, when the market was in almost complete chaos as a result of a sudden collapse in global supply chains due to hasty blockages of the coronavirus, one of the markets in which there was an unprecedented mess was the physical gold market.
As we pointed out in the end of MarchDue to a sudden interruption in the supply of physical gold, as the world’s largest refiners located in the southern Swiss city of Ticino, namely Valcambi, Pamp and Argor Heraus, suddenly stopped mining gold, resulting in a record price divergence. spot gold versus gold futures …
… with the decoupling of gold futures and trading far above spot prices.
Final record divergence of gold futures against spot (to some extent similar to what happened with the price of the WTI quick contract in April, when the May WTI contract was only trading ($ 40), because traders were willing to pay buyers for oil storage in a world where there was suddenly no place for physical goods), which caused the flow of physical gold in the USA as a record struggle of traders in a hurry to seize this arbitrage opportunity by sending bullions to New York, which caused Bloomberg said “may be one of the largest physical transfers of metal.“
“Streams to New York are unprecedented” Allan Finn, global director of logistics and security commodities at Malca-Amit, told Bloomberg that his New York team works 24 hours a day to cope with an unprecedented demand for physical gold during navigation locks, flight failures and social distance.
Since late March, at least 550 tons of gold have been added to Comex’s stocks — worth $ 30 billion at today’s price and roughly equal to world production over this period; hundreds of tons of it were imported. By itself, this amount of gold will be the 11th largest sovereign holding company, exceeding the official 504.8 tons of the ECB.
Traditionally, while tens of billions of dollars of gold go hand in hand in financial markets every day, a much smaller amount tends to physically move between stores in shopping malls such as London, Zurich and New York. But this has not happened in the last two months: everything has begun to change, as the Covid-19 crisis has affected the supply chain. As Bloomberg explains, we first highlighted two months ago:
“When the planes were grounded and the Swiss refineries closed at the end of March, traders were worried that they would not be able to deliver gold to New York on time for delivery against futures contracts. This led to futures, which are usually traded in step with the London spot price. to go up to as much as $ 70 an ounce.
This created an opportunity for enterprising traders: to buy gold anywhere in the world at a spot price, sell futures and profit from the difference by sending metal to New York. ”
The extent of the trade was identified in exchange reports, import and export data, and comments from some of the leading precious metals transportation and delivery companies. Everything occurred to me on Thursday, when traders announced their intention to deliver a record 2.8 million ounces of gold compared to the June Comex contract, the largest daily delivery notification in exchange data since 1994.
The bulk of this gold came from Switzerland, as Swiss gold exports to the United States increased, reaching 111.7 tons in April, the highest ever recorded. Already in March, gold imports exceeded $ 3 billion, according to the Census Bureau, the highest in ten years.
To meet the unprecedented demand for physical gold, refineries such as Australia have increased production of kilobars – the form commonly supplied by Comex – for shipment to New York.
For Brink’s Managing Director Mark Woolley, the surge in demand for delivering gold to New York was unlike anything he had seen in the market over the past 20 years.
“The amount of metal that we successfully transported to New York is quite significant,” he said Thursday at a webinar organized by the London Bullion Market Association. “It’s probably not far from the total amount of metal mined during this period.”
As mentioned earlier, CME Group, which owns Comex, has reacted to an unprecedented market shift and the sudden lack of physical gold in New York by entering into a new contract to supply 400 ounces of bars Type is traded in London. However, “at least other changes need to be considered,” according to LBMA chairman Paul Fisher.
Due to the fact that investor demand for physical data is not on schedule, the huge movement of gold was a blessing for logistics companies, but also a curse: not only passenger flights, on which goods are usually transported, were founded, but also New York, where many Comex warehouses located (recall Giant Gold Vault JPM just got near the New York Federal Reserve) was also a hot spot for the virus.
For work with streams Loomis International UK opened additional storages. Malka Amit was considering using airports in Boston and Philadelphia, but didn’t need it yet, Finn said.
However, while large volumes and virus-related restrictions at storage facilities and airports caused some delays in delivery, a significant portion of the sharp increase in futures contract premiums in March resulted in hundreds of millions of losses for banks such as HSBC was caused by perception. not reality, said Finn.
“My personal opinion is that any assessment of the inability to get gold was poorly informed at that time and was made more on assumptions than on facts,” he said.
However, bonana for shippers of precious metals may take some time. As we indicated last weekLarge shipments showed June Comex futures fell to a spot price discount this week, but later dated futures are still more expensive. In fact, according to BofAIn a world in which central banks are flooding markets, trillions are in recent orders, and faith in the monetary system is gradually dropping one day at a time, the only asset that smart money needs – since it is dropping stocks – you guessed it, gold,
In fact, a simple correlation between world money supply and the price of gold suggests that the yellow metal has upside potential of around $ 1,000.
Meanwhile, as investor interest in other precious metals grows, silver and platinum futures also trade at a spot premium: “The guys in New York have done a great job,” said Brian Hayward, head of Loomis International U.K.
“Now we see a lot of silver heads” Hayward said that could be very good news for silver lovers who recently hit record lows against gold …
… a movement that could very soon reverse.