Gold prices look to post strongest climb in 11 years amid tight supplies and regime of limitless stimulus

March 24, 2020

New York (Mar 24)  Gold prices were on track to post their largest percentage surge in more than a decade as the precious metal extended its rally in the wake of the closure of gold mining operations and moves by the Federal Reserve to address the coronavirus crisis.

The Fed announcement Monday “signals there is a new sheriff in town as the Fed committed to unlimited asset purchases,” said Ryan Giannotto, director of research at GraniteShares, which offers the GraniteShares Gold Trust BAR, +5.12%. “This amounts to a systematic destruction of the dollar as has been known, a fact plainly beneficial to gold’s potential.”

The Fed announced Monday that it would purchase an unlimited amount of Treasurys and mortgage-backed securities to support the financial market.

Meanwhile, three of the world’s largest gold refineries—Valcambi, Argor-Heraeus and PAMP—have suspended production in Switzerland for at least a week because of the mandatory closure of non-essential industry in the country to prevent the spread of coronavirus, according to a report from Reuters Monday. Together, the refineries process around a third of total global annual supply, the report said.

“Gold miner shutdowns are a whole other factor the market is only belatedly starting to factor in— whether Mongolia’s Oyu Tolgoi mine or now operations in Ecuador, Mexico and the U.S affected,” Giannotto told MarketWatch. “The coronavirus’s impact on mining not only prevents an expansion of supply, but may actively contract new production at the very moment gold demand is surging.”

Gold for April delivery GCJ20, +5.85% on Comex was up $85.60, or 5.5%, at $1,653.20 an ounce, The yellow metal booked an $83-an ounce, or 5.6% gain Monday, the largest one-day dollar gain based on records dating back to November 1984, and biggest daily percentage rise since March 2009, according to Dow Jones Market Data.

In a bullish Tuesday research note, analysts at Goldman Sachs described the commodity as the “currency of last resort” and said that the market volatility tied to the outbreak of COVID-19, the infectious disease that has caused a shutdown in much of the world, will help drive prices of bullion higher.

“We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy makers act to accommodate shocks such as the one being experienced now,” wrote analysts at Goldman Sachs led by Jeffrey Currie.

Among other metals traded on Comex, May silver SIK20, +7.45% jumped 78.4 cents, or 5.9%, to $14.045 an ounce, a day after gold’s sister metal surged 7.1%.

May copper HGK20, +4.07% added 5.5% to $2.215 a pound. April platinum PLJ20, +12.03% rose 9.4% to $686.60 an ounce and June palladium PAM20, +14.92% traded at $1,805.20 an ounce, up 16%.


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