Gold headed for the biggest weekly advance since 2008, rallying along with risk assets including equities, as investors weighed up the impact of massive monetary and fiscal stimulus for virus-hit economies and disruptions in the physical bullion market that have roiled trading.
The store of wealth is in demand as the outbreak spreads and investors seek havens from the damage, which has led to the flood of support from central banks and governments. The rush for bullion has come when supply channels are being strangled, with some refineries shutting down and flights halted. That’s limiting sellers’ capacity to meet commitments to deliver the metal.
The disruptions led to uncertainty if there was enough gold available in New York to deliver against contracts on the Comex, exploding the spread between futures and spot prices in London. But peak tightness may have eased as investors roll April contracts to June, which saw open interest jump to 345,689 futures, from 151,828 on March 9, according to initial data compiled by Bloomberg.
“Headlines have popularized the worries about the ability to buy and deliver physical gold and spreads have blown out,” RBC Capital Markets said in a note. “These concerns are, in many ways, justified, but more so if we begin to see more complete shutdowns throughout the supply chain.”
Key players in the global market are working together to facilitate physical delivery, albeit while many dealers of bars and coins are reportedly out of stock, the RBC analysts said. While these concerns are likely adding to exaggerated price moves, gold-positive conditions are not over, they said.
Spot gold was 0.2% lower at $1,627.88 an ounce at 10:58 a.m. in Singapore, headed for a weekly gain of 8.6%. The Bloomberg Dollar Spot Index fell 3.4% this week.
The spread between London and New York prices has narrowed considerably. The disparity was about $22 an ounce on Friday, compared with more than $60 earlier in the week.
Other main precious metals also jumped this week: silver rose 16%, platinum climbed 21%, and palladium surged 41%. Supply concerns are growing for the two platinum group metals as mines shut down in South Africa during a lockdown.