Everyone has been affected by the pandemic, and as investors look for safe havens to store their money in fears of an economic crash, demand in gold has been increasing. In fact, gold has seen an increase in 19% on the return of the pound since the beginning of 2020 (time of writing April)! However, the pandemic has indeed affected the entire gold supply chain, making it difficult for supply to meet demand.
In what ways is the pandemic affecting gold? And what does that mean if I want to buy gold myself? We’ll be answering all your questions in the article below.
The first main thing you’ll likely be noticing is that gold prices are rising. This is not a surprise, considering that gold prices usually increase when there are fears of an economic crisis. In fact, gold is at its highest since October 2012, and has increased by 15% in dollar return and 19% in pound return since the beginning of the year (!).
The truth is, gold is doing incredibly well for the main reason that gold sits outside of the international banking system. If there is a global deflation or inflation and currencies weaken, gold will still maintain its value and do well.
Investors are looking to diversify their portfolios in order to protect and hedge against a potential economic crisis and depression, and so they are turning to gold. This means demand is increasing and therefore so are gold prices. Of course, those who are benefitting the most are the investors who have been holding gold in the long term, since they are now reaping the benefits of a balanced portfolio. However, it’s still not too late for you to buy gold too.
Like pretty much every other industry, the gold logistics are taking a hit from the lockdown caused by the pandemic. Every element of the supply chain has been affected.
One of them has been transport: most flights are grounded globally, which means gold dealers aren’t sure whether they can transport their bullion. Dealers fear getting their supplies trapped somewhere due to cancellations of flights and truck deliveries, so overall, less gold is being transported. Some suppliers are considering using chartered or cargo flights in order to transport gold, since gold usually is transported in commercial planes.
On top of the lack of transport, some gold refineries are having to close in order to enforce social distancing rules. One South African refinery had to stop shipping to London because of this reason. The refineries that are open have stated that they’ll be operating at only 50% capacity for some time. Some gold mines have shut down and as we all know, postal services are also being delayed. This means that in general there are delays in gold deliveries, with some dealers suspending deliveries and sales altogether.
Having said this, the London Bullion Market Association (LBMA) has stated that they are confident that there is enough global refining capacity, and that every participant in the market is working together in order to overcome logistics issues.
The premium is the percentage of the dollar or pound that you pay for the actual spot price of gold. This is basically the fee you are paying to buy the gold.
Due to the limited finite supply and increasing demand, refineries, government mints and brokers have had to raise premiums. This is simply because it is slightly more expensive for refineries and other participants to mine, refine and sell gold, with the added price ending up with the customer. This is causing a divergence between the spot price of gold and the actual price the coins and bars are being sold at, making it more expensive to buy gold.
Since it’s more expensive to mine, transport and refine gold, there’s a knock on effect which makes it more expensive for the consumer to buy gold. At Minted, we’re working hard to keep our premiums at a fair rate: if you buy through our gold savings plan you won’t be paying for insurance or storage fees for a year, and one-off purchases start at 6.5%! Read more about our pricing in our Fees page.
We’re seeing that the pandemic is having a pretty huge impact on every element of the gold supply chain. However, due to the increase in gold price and the fact that gold is a great safe haven during economic crises, we still believe now is a good time to buy gold. At Minted we have gold available to buy – we’ve had to pause delivery for the moment, but buyers can choose storage or “deferred delivery” for when shipping resumes.