Gold Refiners Go Back to Work
After a two-week closure of non-essential industry in Switzerland, three of the world largest gold refiners are going back to work.
Swiss refineries Valcambi, Argor-Heraeus, and PAMP Suisse were shut down by local authorities on March 20 in an effort to slow the spread of COVID-19.
Combined, these three precious metal refineries process around 1,500 metric tons of gold per year — that's a third of the world's total supply!
The shutdown of these precious metal refiners (and others) disrupted gold's supply chains so much that retail bullion dealers actually sold out of inventories. It even prompted the CME Group to introduce a new futures contract to make it easier to trade with London.
But now the three refineries have said they have received government approval to partially reopen “on condition that they observe more stringent hygiene and safety measures” as reported by Reuters.
Valcambi and PAMP Suisse said they would restart operations at 50% capacity. And Argor said it would have a reduced workforce, splitting workers into three groups and separating shifts. Christoph Wild, chief executive officer of Argor-Heraeus, said in a statement:
It is our intention to support the decision of the authorities, guarantee the safety and health of our employees, and at the same time serve our partners as well as possible given the overall extraordinary situation.
This is good news for both bullion dealers and their customers. For the past few weeks, the premium for gold bullion has been unusually high as a result of the supply disruption, coupled with soaring demand.
In a normal environment, investors pay a premium of between 5% and 9% for a one-ounce American Gold Eagle. Right now, they're paying a premium of between 11% and 19% for the same coin. With gold refineries back to work, we should see these premiums start to come down.
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But don't expect it to happen overnight. Fears of a global recession stemming from the coronavirus panic are still driving the demand for gold higher. As such, the premiums for gold bullion will likely remain higher than normal.
Founder of Technical Traders Ltd. Chris Vermeulen published an article on Saturday saying:
Over the past two weeks, I have personally received multiple phone calls and emails from friends and associates asking how these people can suddenly “buy physical metals”. In one case, this individual was purchasing Airline and Food Services stocks in late February thinking this move would be short-lived and telling me how the airlines would recover quickly after this is all over. Now, that person wants to know my secret contacts for buying physical metals. ... Get ready for some incredible price moves in the metals markets and congrats to all the Gold and Silver bugs out there.
Gold and precious metal prices are showing multiple signs of an anxious market. The gold/silver price ratio touched a 4,000-year high, for one. Meanwhile, CBOE's Gold Volatility Index — a measure of the market's 30-day expectation of gold's price volatility — is at its highest levels since the tracker began to tick.
There hasn't been this much interest in gold and precious metals as safe-haven assets since the financial crisis of 2008. 2020 is shaping up to be the gold year for which investors have been preparing.
Hang on tight.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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