Why Dealers Are Running Out of Gold

Gold gained 1.8% overnight in Aussie dollars. It’s currently trading for $2,666 per ounce.

Have a look at the graph below. It’s the one-year price chart for gold in Australian dollars.

Source: Gold Price

On 3 April 2019, you could have picked up an ounce of gold for $1,813. Yep. Good old, safe haven gold has rocketed 47% over the past 12 months.

Now on the far right side of the graph you can see that gold dipped on 24 March. That coincides with the day the global stock market crash began in earnest.

Gold dropped from a record high $2,748 per ounce to $2,614 by 31 March. When stocks are in freefall, investors and fund managers turn to anything liquid they can sell to meet margin calls.

April’s seen a 2% rebound so far.

For a broader picture, the below chart shows you the Aussie dollar gold price going back to 1973:

gold price

Source: Gold Price

In April 1973 an ounce of gold would only have cost you $64. Now, obviously a dollar went a lot further back then. According to the Australian Inflation Calculator, 874% further, to be precise. Meaning that ounce of gold in 1973 would have cost about $623 in 2020 dollars.

Still, that’s a real gain of 328% from an asset people around the globe tend to flock to for safety.

Makes you want to run out and buy a few ounces, doesn’t it?

You won’t be able to get your hands on physical gold

Not that you’ll be able to get your hands on any physical gold right now, mind you. And if you could, it would cost you a handsome premium over the official spot price you’ll find on Bloomberg’s ticker.

You see, when most investors buy gold today they’re buying ‘paper gold’.

Rather than physical bullion, the vast majority of gold purchases are traded in the form of futures on the Comex in New York and other global exchanges. At the moment there are about 100 ounces of ‘paper gold’  for every ounce of the physical stuff.

In ordinary times that works alright. But when the world panics all together, the ready supply of bullion falls short of the spike in demand.

And that’s seen the premium for gold coins and gold sold in the spot market more than double over the past three weeks.

Now this doesn’t mean there’s an actual shortage of gold. Just that the ready supply isn’t enough to meet the viral demand. And the coronavirus shutdowns are throwing an additional wrench into the works. Refineries are temporarily closing. And delivery times of bullion are blowing out by several weeks.

In times of uncertainty, people turn to gold. And the global pandemic and resulting lockdowns are causing uncertainty not witnessed for generations.

Which means the demand for physical gold should remain strong. And we could well see even higher prices ahead.

PS: Higher gold prices will be welcomed by the gold miners. For The Rum Rebellion editor Greg Canavan’s formula for picking potentially winning gold stocks, you can download his free special report, ‘How to Pick Winning Gold Stocks’, here.

Bernd Struben is an Editor of The Rum Rebellion. In this capacity, he has access to one of the most intriguing and powerful networks of practical investment insight anywhere in the world.

Bernd has worked on four different continents, and has more than 20 years of professional finance, editorial, and management experience. He holds a degree in economics.

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