15:52 GMT15 January 2021
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    Oil Prices Slump, Coronavirus Fears Send Global Economy Into Turmoil (109)

    The uncertainty and volatility triggered by the coronavirus pandemic currently impacting all walks of life has prompted a surge in demand for physical gold as the “currency of last resort”, with the precious metal enjoying a historic rally.

    Gold dealers are struggling to supply clients with small gold bars and coins, particularly popular among retail investors, amid a drastic shortage generated by surging demand, reports Bloomberg.

    Desperately contacting clients in the search for those willing to sell their gold bars and coins, some dealers are offering exorbitant premiums of up to 10-15 per cent over spot prices, while others have all but given up amid the dramatic demand on the one hand, and disruption triggered by the COVID-19 pandemic on the other. “People want to buy, not to sell gold,” Mark O’Byrne, the founder of GoldCore, a dealer based in Dublin, is quoted as saying.

    The dealer adds:

    “We have a buyers’ waiting list and we emailed our clients seeing who wished to sell their gold. At this time there is roughly only one or two sellers for every 99 buyers.”

    Those anxious to buy gold bars are prepared to pay well above the per-ounce prices cited on financial markets.

    One of the factors impacting the current dramatic shortage is product size, as experts explain that while large bars of 400 ounces used by banks and investors are readily available at big trading hubs, a regular person seeking to invest in physical gold would hardly be prepared to splurge on a $600,000 bar. The practical solution for individuals driven by the worrying global situation is to invest in kilobars, weighing around 32 ounces, 1-ounce bars and coins, or something smaller.

    It is these items that are becoming increasingly difficult to procure.

    Gold coins
    © CC0
    Gold coins

    The second reason for the shortage is the supply challenges, as global travel has practically ground to a halt due to the lockdowns and other emergency protocols in place over the pandemic. Operation of some refineries and mints has stopped similarly due to local lockdowns.

     Markus Krall, chief executive of German precious-metals retailer Degussa, said he had never witnessed such high premiums, as average price of products in shops was currently between 10 -15 per cent over spot prices. The surging demand, said Krall, was also unprecedented.

    Not all products were sparking equally elevated premiums, as gold kilobars manufactured by Argor-Heraeus SA, a big Swiss refiner who had been forced to shut down operations last week due to the COVID-19 pandemic, were selling for over 6 per cent above spot prices, said analyst Ronan Manly.

    “We are seeing an unprecedented situation where huge customer demand and the disconnect between physical prices and spot prices is driving buy premiums high,” he said.

    Spot prices in London or New York “are completely detached from the reality on the ground,” Manly, an analyst at Singapore dealer BullionStar, was quoted by Bloomberg as saying.

    Previously, a note from Goldman Sachs dated 23 March suggested the time was ripe to buy gold.

    "We are beginning to see a similar pattern emerge as gold prices stabilized over the past week and rallied today as the Fed introduced new liquidity injection facilities with this morning's announcement," Goldman Sachs analysts led by Jeffrey Currie said, after the Federal Reserve announced unprecedented actions on Monday to boost the economy amid the coronavirus pandemic. Unveiled measures included unlimited bond-buying and facilities to aid companies and workers.

    An empty street is seen near Wall street during the outbreak of the coronavirus disease (COVID-19) in Manhattan, New York City, U.S., March 27, 2020. Picture taken March 27, 2020
    © REUTERS / Jeenah Moon
    An empty street is seen near Wall street during the outbreak of the coronavirus disease (COVID-19) in Manhattan, New York City, U.S., March 27, 2020. Picture taken March 27, 2020
    "Both the near-term and long-term gold outlook are looking far more constructive, and we are increasingly confident in our 12-month target of $1800/toz," said Goldman Sachs.

    While gold prices have demonstrated a roller coaster effect of late as markets are shaken worldwide by the novel coronavirus pandemic, overall the precious metal has been steadily gaining in value accumulating 7.73 percent in the last three months and peaking at almost $1,700 per ounce at some point in March.


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