Prices of gold futures have rallied to above $1700 USD an ounce (the highest level seen since 2012) as investors respond to the global economic contraction brought about by the coronavirus pandemic. The spread has been pushed over spot prices in the futures market, showing the commodity is being traded at a more a volatile rate and a more frequent duration than is usual.
As is typical in a downturn, traders and institutions seek safer investments for their equity, with precious metals like gold being one of the more popular ‘safe-bets’ in times of economic uncertainty, along with government bonds and other cash products.
These behaviours are once again being observed amongst investors from all nations.
The US demand for physical gold is at the moment contrasted with the rate of EU selling, which in turns impacts the amount of deliverable futures contracts. The aforementioned spread, or gap between these prices has been seen on the markets recently.
The US Futures price rose by around 3% to $1742.60 per ounce recently, while EU spot prices were lower at $1659.53 per ounce. This shows the spread divergence at more than $50 an ounce when comparing US Futures prices to EU spot prices.
This gap between futures and spot prices follows a pattern observed in the previous month that showed a concern regarding a shortage of physical gold for delivery against New York contracts in response to Coronavirus disruptions.
Physical stockpiles have increased since last month’s supply and delivery concerns, with Comex stockpiles reaching the highest-ever level in history at almost 16 million ounces according to bourse data. This will meet up to three quarters of exchange requirements.
Major gold processing refineries have restarted in response to an upturn in demand for physical gold assets.