Gold Squeeze Had Traders Looking for Bars as Far Away as Sydney
Strong demand may persist after the virus is contained due to large amounts of government, corporate debt and low-yielding bonds
(Bloomberg) --
The historic squeeze in New York that roiled the gold market last week had investors looking as far as Sydney for supply.
Logistical disruptions due to the coronavirus pandemic had led to fears there wouldn’t be enough bullion in New York to meet delivery obligations for contracts traded on the Comex. Investors scoured the globe to track down physical gold, with independent Australian refiner ABC Refinery reporting a surge in demand from North America for deliverable bars last week.
“We have received increased demand from North America, obviously with the recent Comex liquidity shortage,” said Managing Director Phillip Cochineas. Demand also picked up from Europe due to “the lack of production from refiners who have had their operations locked down,” he said.
ABC makes products including 100-ounce, 1-kilogram and 400-ounce bars, with the latter now deliverable after CME Group rushed the launch of a new futures contract to address supply issues.
While the squeeze in futures has eased -- there’s enough gold in Comex warehouses to meet delivery obligations -- prices are surging on demand for a haven amid global market turmoil. Investors are pouring into exchange-traded funds, gold sales at Australia’s Perth Mint jumped to the highest since 2013, while the U.S. Mint sold the most bullion coins in three years.
ABC, which has capacity to refine more than 400 tons of gold and over 750 tons of silver a year, has increased production as it’s seeing strong demand in Europe and Asia, in addition to North America.
“The general demand is for gold in whatever form possible in order to fulfill the huge demand that is running across the market place at the moment,” said Cochineas. The refinery has focused on making 1-ounce, 100-gram and 1-kilogram cast gold products and 1-kilogram cast silver products.
Strong demand may persist even once the virus is contained due to large amounts of government and corporate debt and low-yielding bonds, according to Cochineas.
“Equities and bonds are out and gold is in,” he said. “Investors are worried about indebtedness. There’s so much corporate leverage in the world that the worldwide economic impact of coronavirus is only going to amplify the pain that’s going to be felt by those corporate borrowers. There will be a real deterioration of government finances in the aftermath of the virus. Gold will be a natural choice for investors both large and small.”
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