As the coronavirus pandemic continues to spread rapidly throughout the world, the global markets are taking a hit. Whenever investors are worried about the future, they always turn to gold to protect their savings. That has rarely been more true than today. On March 2, reports have emerged that small gold bars and coins are in high demand from the consumers.
The rising demand and disruptions from the pandemic have resulted in a shortage of small gold bars, which are most popular with the consumers. The investors who manage to get a hold on the precious metal have to pay up significantly above the standard per-ounce prices that are being quoted on the financial markets in London and New York.
Some of these dealers are trying to contact clients to see if anyone wants to sell their gold bars and coins. They are even offering a rare premium over the spot prices. Other dealers have already given up trading altogether. Mark O’Byrne, the founder of GoldCore, a dealer based in Dublin, explained:
“People want to buy, not to sell gold. We have a buyers’ waiting list, and we emailed our clients seeing who wished to sell their gold. At this time, there are roughly only one or two sellers for every 99 buyers.”
The size of different products is a major reason for the current crunch. Although there is a lot of gold in a prominent trading hub like London, the banks and many other institutional investors there regularly use the big bars of 400 ounces.
That amount is not practical for a regular investor who may not want to pay up more than $600,000 for one bar of gold. On the contrary, these traders prefer kilobars of around 32 ounces, 1-ounce coins, and bars, or even something smaller.
The smaller items are becoming quite hard to find for many reasons. First, the demand has exploded violently. However, there has also been significant pressure on supply coming from the global travel shutdowns since some mints and refineries have stopped operating or capped their production due to the local lockdowns.
The chief executive of German precious-metals retailer Degussa, Markus Krall, said that the premiums in the retail market have exploded. The average price of the products in shops is ranging between 10% and 15% higher than the spot prices. This has never happened before for Krall. Furthermore, demand is at the highest level that he has ever experienced.
Various products also command more of a premium compared to the others. The Kilobars manufactured by Argor-Heraeus SA, which is a major Swiss refiner whose plant has closed down since last week due to the current health crisis, was selling for more than 6% above the spot price. One analyst at Singapore dealer BullionStar, Ronan Manly confirmed that information. He explained:
“We are seeing an unprecedented situation where huge customer demand and the disconnect between physical prices and spot prices is driving buy premiums high.”
Currently, the spot prices coming from London or New York “are completely detached from the reality on the ground.”