The worst crisis since the Second World War is brewing in the global economy. While investors are shifting masses of money to safe investment ports for fear of the economic consequences of the corona virus pandemic, a supply bottleneck in the crisis currency gold is making headlines.
Precious metal traders report difficulties in replenishing gold coins and gold bars because trading in precious metals is also suffering from the consequences of the corona pandemic. According to experts, the current flood of money from leading central banks in the fight against the crisis should push the gold price further towards a record high.
Loss of supply cannot be compensated
“The big gold processors have been out for about a week and a half,” said precious metal trader Alexander Zumpfe from the Heraeus trading company. Many companies that are leaders in the processing of precious metals are based in the Canton of Ticino.
The canton lies on the border with Italy, and, like in the neighboring country, all companies in Ticino that are not system-relevant had to shut down their production. Equivalent alternatives are not in sight: “Smaller bar manufacturers in other countries are unable to compensate for this loss of supply,” said Zumpfe.
Delivery problems in South Africa
There are also supply problems in South Africa, where the fight against the corona pandemic is slowing down gold mining. The result: certain gold bars and gold coins are only available to buyers with restrictions.
Demand has risen sharply in recent weeks. Degussa Goldhandel has been talking about bars and coins since the beginning of March, growing by more than 500 percent compared to the same period last year. The tense situation is also reflected in the currently relatively high spread between the purchase price that gold traders pay and the sales price for customers.
If you do not want to do without gold as a safe investment port, you can still easily buy securities backed with gold. However, despite the escalating crisis, price gains have recently been limited. During the violent stock market turbulence in March, the price of the precious metal even collapsed at times.
Market watchers referred to forced sales. Numerous investors quickly needed money during the turmoil to offset losses elsewhere. Despite the occasional heavy losses, the gold price in the first quarter, i.e. from January to March, was still around five percent below the bottom line and was recently at just under $ 1,600 per troy ounce (31.1 grams).
The strongest price driver remains the extremely loose monetary policy of leading central banks, whose money gates have opened up further due to the corona crisis. In the fight against the economic downturn as a result of the Corona crisis, unprecedented amounts of new money are being pumped into the economy worldwide. For many investors, concerns about a possible drop in currencies like the euro are fueling demand, which further increases the demand for gold.
Central banks cut purchases
However, an important price driver on the gold market currently seems to be failing: At the beginning of the year, massive gold purchases by central banks in emerging countries were a reliable support for the gold price. In the meantime, the situation has changed noticeably. The Russian central bank announced earlier this week that it no longer wanted to buy gold from April. No reason was given. Experts see possible causes in the extreme drop in oil prices and the downward slide in the Russian ruble.
Commodities expert Carsten Fritsch from Commerzbank also points out that the Chinese central bank has not bought gold for months. The central banks of India and Turkey are still active as buyers on the gold market in order to make the dependencies of their reserves a little more independent of the US dollar. However, the two central banks are unlikely to be able to compensate for the loss of Russia and China, said Fritsch.
«Reviving» the safe investment port
In Goldman Sachs’ latest study on the price of gold, investment bank experts recognized a price rally in gold, fueled by the flood of money from central banks. You spoke of a “revival” of the safe investment port. “We do not rule out an increase to $ 1,700 an ounce by the end of the year,” said Heraeus dealer Zumpfe.
At Degussa Goldhandel, the gold price is even expected to reach an upper limit of $ 1930 this year. “In the wake of the coronavirus pandemic, it has become very likely that this upper limit will be reached or even exceeded,” said Degussa Goldhandel chief economist Thorsten Polleit. That would be a new record high for the price of the precious metal.