Worries over a gold shortage gripped the New York precious metals market on March 24 as the global response to the coronavirus tightened the supply of gold at a moment of crisis. Investors wondered if there would be an adequate supply of the precious metal to deliver against April contracts that are traded on the COMEX futures exchange. The number of outstanding April contracts for gold, which settle four business days prior to the end of March, stood at more than double the actual deliverable gold holdings in COMEX warehouses.
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“This isn’t anything that we’ve seen in a generation because refiners never had to shut down – not in war, not in the great financial crisis, not in natural disasters,” Tai Wong, head of metals derivatives trading at BMO Capital Markets, told Bloomberg News. “It’s never happened. And it happened astonishingly rapidly.”
Three of the world’s largest gold refineries—Valcambi, Argor-Heraeus and PAMP—are located in Switzerland, along the border with Italy, where the virus has infected more than 69,000 people. Local authorities in the Swiss canton of Ticino, where the refiners are located, ordered non-essential industries, including the refineries, to close at least until March 29. Valcambi and PAMP said they would do so, while Angor said it would shut until April 5, according to a Reuters report that said the three companies account for a third of global supply. At the same time, shipments of refined gold have slowed as many flights have been cancelled due to virus concerns.
COMEX contracts require delivery of gold in bars of 100 ounces or bars weighing a kilogram. The shortage in New York could be relieved with gold from London. But the London standard bar is 400 ounces. Normally, the gold would be melted down, recast, and rushed to New York. But due to coronavirus restrictions there were doubts that solution would be workable. Reuters reported the London Bullion Market Association and several major banks asked COMEX owner CME Group to ease its rules to permit London’s 400-ounce bars to be used to resolve the settlement crisis.
In a statement, the London Bullion Market Association said, “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.”
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