Gold futures and spot gold decouple
Some vendors report running out of physical gold
Major spreads have developed in the gold market this week with futures significantly above spot prices.
Leveraged funds and institutions have rushed to sell their paper gold holdings in order to boost liquidity and meet margin calls. Individual investors have rushed to acquire physical gold, trusting it as a store of value.
This decoupling of physical and paper gold has been welcomed by "gold bugs" who like to hold on to their yellow metal as they have purchased it at a lower-than-normal price.
Such enthusiasts and investors will not have long left to capitalise on the divergence, as many vendors are reportedly running out of physical gold.
Supply of the metal has been significantly affected by the widespread shutdowns imposed across much of Europe to arrest the spread of the novel coronavirus. Three of the world’s most productive gold refiners, all located in south Switzerland, are now effectively offline with no clear schedule for resumption.
On Tuesday (March 24) the spot/futures price divergence skyrocketed, widening to its widest point in almost four years. Leveraged funds were continuing to offload paper gold holdings to cover losses incurred elsewhere. Physical gold was facing a simultaneous spike in demand and plunge in supply,
Responding to this growing decoupling, the London Bullion Market informed Kitco Metals: “The London gold market continues to be open for business. There has, however, been some impact on liquidity arising from price volatility in Comex 100-oz [ounce] futures contracts. LBMA has offered its support to CME Group to facilitate physical delivery in New York and is working closely with Comex and other key stakeholders to ensure the efficient running of the global gold market.”
By Wednesday afternoon the gap had tightened somewhat but remained noticeable. While Comex April futures contracts stand at $1,635.40 per troy ounce, spot gold stands much lower at $1,612.83.
FURTHER READING: Leaders agree on largest stimulus in US history
FURTHER READING: ‘Digital dollar’ proposals scrubbed from Covid-19 relief bill