Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
The amount of gold stored in vaults in New York registered by CME Group’s Comex exchange has risen by nearly 2 million ounces, CME data showed, proving ample to settle monthly contract obligations and easing concerns of shortages that sent prices skyrocketing.
Traders worried it would be impossible to fly gold from London to deliver against Comex contracts after coronavirus lockdown measures grounded planes and shut several precious metals refineries last month.
On March 23, just before gold traded in New York jumped as much as $70, or 4% above London spot prices, contracts representing almost 20 million ounces for delivery in April were open on Comex, with less than 9 million ounces in store.
Investors typically use Comex to gain exposure to gold prices and rarely ask to take metal, which costs money to store
But the price premium triggered a rush to transfer gold to New York.
Total stocks in Comex-registered vaults increased by 1.75 million ounces, or 54 tonnes, from March 26 to a four-year high of 10.5 million ounces, while the proportion put on warrant, or made available for delivery, doubled to around 40%.
Meanwhile, most investors rolled their positions to contracts with future delivery dates, reducing the amount of gold needed for settlement.
24,489 contracts equivalent to 2.4 million ounces for April delivery have been redeemed for metal, the highest monthly total since at least 2011, CME data show.
Investors typically use Comex to gain exposure to gold prices and rarely ask to take metal, which costs money to store.
For that reason, far less gold is stored in New York than trades there. If gold is needed, it can be quickly flown on passenger planes from London via Swiss refiners that melt and reshape it to meet Comex specifications.
The next active monthly future on Comex is for June delivery, with 359,803 contracts active representing 36 million ounces.
Its price is around $25 above London spot gold, suggesting that worries remain.
“There’s still some logistical concerns in the market about not having the right bars in the right place,” said Saxo Bank analyst Ole Hansen.
But he said the price gap would shrink as refineries reopened and the CME launched a new gold contract that can be settled using London standard 400-ounce bars as well the 100 ounce bars it currently takes.
The London Bullion Market Association, which oversees London trading, said last week it was working with refiners, shippers and banks to move metal, including by cargo and charter planes.
(By Peter Hobson; Editing by Veronica Brown and Elaine Hardcastle)
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