Doomsday Scenario: chaos in gold market due to coronavirus

US, WASHINGTON (ORDO NEWS) — Coronavirus-related market turmoil forced investors to trick gold into military aircraft and literally rummage around the vaults in search of stale bullion. The reason was the big difference in gold prices and supply contracts.

In the context of the coronavirus pandemic, investors and bankers faced a severe shortage of gold bullion and coins, writes The Wall Street Journal. The newspaper calls what is happening “doomsday scenario” and emphasizes that the gold market, which has become a stronghold for the “survivors,” has gripped chaos.

Dealers sold out all stocks or temporarily suspended operations, while London bankers book private jets and try to trick them into gaining access to military sides to deliver bullion to New York, the newspaper said. The situation is so dire that Wall Street financiers are asking for help from Canada – The Royal Canadian Mint “is inundated with requests to increase the production of gold bullion, which can be delivered to New York.”

The price of contracts for the supply of gold this week rose by about 9% and amounted to $ 1,620 per troy ounce, said WSJ. The newspaper emphasizes that since 2000, in rare cases, gold has risen in price for a week more. This happened, for example, after the bankruptcy of the American bank Lehman Brothers in 2008.

“Everyone is looking for buffets”

“When people think that they cannot get something, they go about it even more. Look at the toilet paper, ”explained RBC Wealth Management trader George Jero. Gold is really popular among “survivors” and supporters of conspiracy theories, but at the same time it is a reasonable element of the investment portfolio, because its price is relatively stable, WSJ notes. “Gold is the only money that cannot be printed,” Roy Sebag, CEO of Goldmoney, told the newspaper. Goldmoney owns one of the largest gold reserves worth about $ 2 billion.

The reason for the chaos was that the coronavirus-related shocks this week provoked an increase in the price of gold contracts on the New York Stock Exchange, WSJ notes. Their price is sometimes $ 70 higher than the value of gold traded in London in physical terms. Traditionally, gold and its supply contracts differ in price by about a few dollars. Therefore, this difference made many traders act. They began to buy contracts, hoping that banks could not find enough gold and money could be squeezed out of them.

Sebag said the bankers were bidding him more than $ 100 more than the price of gold at auction in London. Former Scotiabank trader Wade Brennan told the newspaper that he had heard of American bankers who literally checked the corners of their gold storages, hoping to find previously unnoticed gold. “Everyone is looking for buffets,” he said.

Gold “not where you need it”

Another problem is to limit production, writes The Wall Street Journal. Mines in countries such as Peru or South Africa are closed due to coronavirus. And the Swiss factories that smelted gold bullion stopped working after the number of cases in the country reached 10,000. There is still affordable gold worth about $ 10 trillion in the world, but “it is not where it is needed,” the newspaper explained co-founder of Bullion Reserve, Simon Mikhailovich.

At the same time, those who are ready to deliver gold can make money on this problem, notes WSJ. In normal times, transportation of gold costs about 20 cents per ounce, a retired trader who used to work with valuable metal told the newspaper. A little less than 20 cents is the remelting of gold into ingots and their processing to American standards. Another 10 cents per ounce is financial cost.

Thus, if prices in New York are $ 1 higher than in London, the bank could earn $ 80,000 with almost no risk for transporting five metric tons of gold, the newspaper calculated. And doing this in the conditions of prices that were established on Tuesday, the bank can earn $ 11 million, if you do not take into account the cost of using a private jet.


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