The global supply chain is facing physical gold shortages in the face of supply chain disruptions, investors fleeing to safe assets and major actions taken by the Federal Reserve to support the financial system.
According to Bloomberg, the premium of gold futures on the spot price of gold has reached its highest level in decades. This development comes as desperate investors try to invest their funds in more liquid derivatives to protect themselves from the turbulence of global stock and commodity markets.
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Image source: The Block, CoinMetrics, FactSet
The report also indicates that major gold refiners have been closed to curb the spread of the coronavirus, and the suspension of border control measures and aviation routes has increased tensions.
In fact, according to Reuters, the London Bullion Market Association and several major banks have asked the CME Group of the American Derivatives Exchange to change the rules for the delivery of this precious metal in order to ease the disruption of trading.
Supporting these supply issues are investors' strong bullish sentiment towards gold.
Although gold prices have fallen 7% from their highs on Thursday, gold prices have risen sharply this week as the Federal Reserve has adopted a series of stimulus plans designed to support the US economy. At press time, gold was trading at about $ 1618 per ounce.
In a research report issued to customers on March 23, Goldman Sachs believes that the rebound in gold prices can be expected to some extent. A similar trend was observed during the 2008 financial crisis, when gold prices plummeted by 20% for the first time, and then rebounded after the Federal Reserve announced a $ 600 billion quantitative easing plan.
The Fed now appears to be updating its script. On Monday, the central bank announced major measures to provide "unlimited quantitative easing" to purchase government bonds and mortgage-backed securities. The Federal Reserve cut interest rates twice on March 3 and March 15 and began buying commercial debt and establishing new lending instruments to keep the credit market stable.
Source: The Block, Federal Reserve
"We are likely at an inflection point, as in November 2008, 'fear-driven' buying will begin to dominate liquidity-driven selling pressures. As a result, the near-term and long-term gold outlook looks more constructive, We are increasingly confident that the gold price target for the next 12 months is $ 1,800 per ounce , "the Goldman Sachs memo said.
Interestingly, the retail market does not seem to be recovering from the gold boom, at least not on the popular trading application Robinhood. The 30-day rolling growth rate of gold exchange-traded fund (ETF) holders on Robinhood plunged below 10%, while the growth rate of S & P 500 gold ETF holders jumped to more than 40%.
Source: The Block, Robinhood
At the same time, the correlation between Bitcoin and gold reached a 10-month high last week. As of press time, Bitcoin is trading at approximately $ 6,695.
Source: The Block, FactSet, CoinMetrics