Gold has gained in Wednesday trading as concerns grow for the feasibility of a V-shaped rapid recovery from the depression triggered by the Covid-19 pandemic.
Having plunged 3.1 per cent in the previous session, spot gold stands up more than 1 per cent by early-afternoon trading (GMT) to stand at $1,591.00 per troy ounce.
The yellow metal was hemorrhaged during the immediate coronavirus outbreak sell-off in early to mid-March, with funds liquidating their holdings in order to cover losses incurred elsewhere and to meet margin calls.
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This immediate drop led some to question gold’s strength as a store of value. However with investors also flocking out of US treasuries and even out of the yen (JPY) at the same time, believing instead that “cash is king” (USD), the metal was not the only traditional safe-haven to experience an odd March.
With the Federal Reserve cutting rates to zero, resuming QE infinity and injecting trillions of dollars of liquidity to bolster faltering parts of the US financial system, gold’s potential as a longtime store of value and hedge against inflation has attracted interest once more.
While gold demand may be increasing, the actual supply of gold has been severely limited by the ongoing coronavirus outbreak. Three of the world’s largest and most important gold refineries are all based in southern Switzerland and have been closed for more than a week as they are considered part of a “non-essential” industry.
This divergence has contributed to an emerging decoupling between the price of paper gold and the value of physical gold. Recently the London Bullion Market Association outlined its efforts to ameliorate the ongoing situation by working with banks, refiners and shippers “to overcome travel constraints and ensure the physical movement of metal via, for example, chartered or cargo flights”.
The five banks that clear gold trades in the London market are reportedly contemplating widening their network of storage locations to other countries if it becomes impossible to fly a sufficient amount of the yellow metal in and out of London.