*Bullion market never seen in past not during war, financial crisis nor natural disasters time as well
*12-month gold lease rate is at 0.995% could change bullion dimension
It was a wild and woolly trading day Tuesday, in very early morning US trading, April Comex gold futures shot to a high of $1,699.15 an ounce (31.1035 gram) and Comex silver futures shot to a high of $14.88. There was keen trader concern that London spot gold price quotes had become unreliable or had been pulled as UK market-makers shut down and gold mines around the globe curtailed operations due to the Covid-19 outbreak, and the UK government ordered the country on lock-down. Retailers have already reported shortages and delays of up to 15 days on shipments.
According to Indian Bullion and Jewellers Association (IBJA) secretary, Surendr Maheta, this we have never seen in past, not during war, never in financial crisis nor during natural disasters time as well. Hence futures of gold in NY are skyrocketing over spot in LME. Gold market watcher Ridhdhi-sidhdhi bullion director Ketan Kothari blamed the media for examining March Comex futures, which expire soon and have very little open interest and whose price would be extra volatile amid little liquidity. Importantly, as of this writing, there was no confirmation of this matter as traders try to sort the confusion out. April gold futures were last at $1,647. May Comex silver prices were at $14.46 on Wednesday.
Apparently, big gold traders and commercials in Europe who normally base their trading decisions on the London spot price rushed to buy Comex gold futures when they could not get London what they felt were accurate London spot gold prices. While going through global media, I found Gold market in New York is facing historic squeeze as investors are piling in to the metal. There’s shortage of gold in New York to deliver against future contract trades in comex. Total deliverable gold in comex warehouse is only half of the contracts done.
The stimulus package being announced by USA and most G-20 nations in a co-ordinates effort will result in inflation coming back to a great extent. And, inflation always is off-site through gold hedging, said spequnomisy Kushl Thakar. Secondly, the 10-year T-bills yield is fluctuation between 0.5 to 0.9%, whereas 12-month gold lease rate is at 0.995%. The current inversion in gold/silver lease rates is incredibly bullish long-term. Physical shortages of gold and silver could develop quickly in a financial market panic situation.
Hence, the quick upsurge in gold prices is being seen, he said. Hence, bond traders are preferring gold. Thirdly, refiners are shutting down and dealers do not have enough gold to deliver either due to lack of inventory or logistical issues. We believe this price fall is mainly the result of sharply higher real-interest rate expectations as we are seeing a temporary surge in dollar demand. We think this could change on a dime. Massive renewed central bank intervention will push gold prices sharply higher to over $2600 over the medium term.
(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 25-3-2020