In just over a month, the New York gold market has gone from an alarming lack of supply to a massive surplus of physical metal. The distortions caused by Covid-19 in the activity of refineries and international transport have altered the supply chain. It created a new situation that could affect the evolution of the metal’s price.
The New York gold market is currently in a state of saturation caused by an excess supply of physical gold at banks.
Last March, with the coronavirus containment measures in many countries, the market was affected by the interruption of its supply chain.
From that moment, COMEX deposits (the New York gold market, where futures contracts are traded) began to surge to record levels.
According to the latest data from CME (a company that manages COMEX), since the end of March, more than 16.8 million ounces (522.5 tons) of gold have been received. The latest data points to the existence of more than 26 million ounces (809 Tm) of gold in its vaults.
The data published by the Swiss Federal Customs Administration shows that the country exported 131.8 tons of gold in April. The figure is the highest since August 2019. Most of the exports (111.7 Mt) went to the United States.
So far, the US averaged less than 2 tons per month of gold imported from Switzerland in 2014-2019. It soared to more than 111 last month.
According to Ole Hansen, an analyst at commodities of Saxo Bank, the surplus metal that the US market has accumulated is no surprise. During the last March, the country had faced significant supply problems.
It is always better to have too much gold than to be caught without it, but that shows the enormous fragility of the supply chain, says Hansen.
According to this analyst, besides excess supply, the market also has other difficulties, such as persistent liquidity problems. Banks have been reluctant to play the role of mediators in physical markets.