Gold supply chain flexibility in difficult times

Gold showed incredible resilience despite the harm done by the COVID pandemic. By now everyone is tired of hearing about the pandemic and it seems we can’t escape it as fast as we had hoped. The gold supply chain was adversely affected. Various parts of the gold supply chain were interrupted but this precious metal showed strength and stability. For gold to flow where it is needed and in its desired form various components within the supply chain need to work smoothly.

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Gold sources

Gold mining happens in distinct geographical locations and many of those were affected in one way or another. Some mines were forced to close down whilst so of the biggest producers of gold like China saw their activities decrease. However whilst other countries saw a decrease in production those countries that could still mine gold uninterrupted made up for some of the supply shortfalls.

The total amount of gold produced was 3% which was relatively moderate considering the scale of the pandemic. However, production started to gradually go up.

Gold also comes from recycling old or used gold products but that also fell by 4%, the lowest it has been since 2017. Lockdown measures meant that gold retail went down. People still wanted to buy gold to hedge against further financial catastrophe but that meant the supply of gold products was low forcing some gold dealers to shut down because they had run out of inventory. If you were looking for gold bullion then you would have experienced delivery delays.

Reduction of the downstream capacity

Refineries also stopped or reduced their operations as they weren’t getting as much gold to produce gold bullion bars and coins in the quantities that were needed. However, despite the squeeze in the supply chain those refineries that were unaffected increased production to meet the extra demand.

Logistical nightmares

With sourcing gold and refining under threat, the biggest threat of all seemed to be logistics because of the travel restrictions imposed across the globe. This means that it took time to transport gold because of border closures, flight restrictions, and other transportation restrictions. To go around this some refineries have had to charter cargo air-crafts and find other alternative transportation. There were localized liquidity problems but overall, investors were still able to buy and sell gold to get the cash they need. Click here to get more info.

Disparity of gold bullion supply

The pandemic took uncertainty to new heights. It added to the risks brought on by low-interest rates, inflation low economic growth, and falling currencies.

The assumption that inflation can be fixed by rising interest rates has not proven to be when you take into account all those other non-monetary. A good example is in the chicken market. In a bid to keep their businesses afloat as a result of COVID’s restrictions a lot of chicken farmers found themselves having to send a lot of their workers home. This affected the output. This means chicken farmers end up having to buy fewer birds and having to sell at low prices. As that happens, restaurants and supermarkets have increased the price of chickens because of low supply. When you look at such things, you realise that the market price is more complex than it seems.

When you go to a dealer to buy gold you may notice higher premiums due to fewer small bars and coins due to the supply chain shortages.

The shortage of bullion coins and bars pushed the price of gold bullion higher. A lot of gold dealers charged more premiums for their products. Gold coins came at a higher premium. Besides high premiums attached to the gold quality, design, etc, dealers found themselves having to charge more for transportation. If you were to buy gold then, you might have had to wait longer than usual because of logistic problems. A lot of gold dealers would push deliveries further back by 2 weeks. At one point the premiums for 1-oz American gold eagle coins were as high as 8% above spot. The normal premium would have been 2% above the spot. The high premiums should narrow down when gold market issues ease up some more and the supply chain can continue to run smoothly. This has already began to happen. The gold market is resilient but it also adapts quite quickly when it needs to. This is why gold has persevered as a solid asset that retains its value better than anything else.

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