Gold shows few signs of return to normal with spreads still wide

The gold market is showing little signs of going back to normal.

The gap between New York futures and spot prices in London is still teetering around $40, a sign of lingering concern over future supply of the physical form of the metal. While gold is being sought as a haven from broader market turmoil, it’s still difficult to ship bullion around the world due to coronavirus-related restrictions.

Uncertainty over when the restrictions will be lifted is raising speculation that dealers face logistical risks. Liquidity is also relatively thin in the market, further exacerbating the price dislocation.

“People are paying the premiums over in the physical market and I think it’s rolling into the futures,” said Peter Thomas, a senior vice president at Chicago-based broker Zaner Group. “It’s safe-haven buying. People are scared.”

To be sure, there’s plenty of gold available in New York, according to the Comex exchange. Stockpiles available for delivery on futures contracts are at the highest in over a decade, at about 4.4 million ounces.

That’s compares with just 81,100 ounces — the amount of gold that’s needed for potential delivery in April based on open interest in the month’s contract. Additionally, total stockpiles tracked by the Comex have surged to a record of over 17 million ounces.

While the market is disrupted, the fallout from the coronavirus crisis has boosted gold’s appeal as a store of value. Futures are set to close at the highest in seven years on Thursday, supported by the latest signal of weakness in the economy — U.S. jobless claims reached a new record for a third straight week.

“The market itself is not broken, no, it is dealing with the exogenous shock of the much reduced shipping,” said Rhona O’Connell, head of market analysis for EMEA and Asia at INTL FCStone. “It’s the inability to move metal around that makes people nervous about committing to short positions on the futures.”

Spot gold rose 1.7% to $1,673.88 an ounce as of 2:30 p.m. in New York. On the Comex, futures were trading 3.3% higher on the day at $1,720.1.

All said, the gaps should be temporary as major refineries restart operations, Suki Cooper, precious metals analyst at Standard Chartered Plc, said in a note.

(By Elena Mazneva and Justina Vasquez, with assistance from Ranjeetha Pakiam)