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Gold rush as investors dig deep to survive crisis

July 10, 2020

The traditional safe haven gold enjoyed unmatched attention in the first half of 2020, as the global pandemic devastated financial markets and brought turbulence to previously steady investments. Gold prices currently sit at a level last seen in January 2012. In the first three months of the year, exchange-traded funds and other investment vehicles hoovered up more than $US15.4 billion ($22.3 billion) worth of gold, a 300 per cent year-on-year increase, a recent report from fund manager Invesco said. And it wasn't just retail investors getting involved in the action: central banks increased their purchases of gold by 34.4 per cent compared with the previous quarter, Invesco added.

Meanwhile, demand for other gold products, such as coins, also soared, even as more than 61 gold mines around the world were locked down in a bid to slow the spread of coronavirus, new analysis by The Daily Telegraph shows.

This dislocation between the situation on the ground and the value of gold can be explained by the robustness of the precious metal's supply chains, according to experts.

"The temporary suspension of some mining and refining activities along with strict travel restrictions created unprecedented challenges to the movement of gold within the market," says Krishan Gopaul, market intelligence manager at the World Gold Council. But he adds: "Amid these challenges, the resilience of the gold supply chain shone through."

Coronavirus "has spread fear across the global markets. [This] led to global responses from central banks and governments to provide stimulus in various ways. Both of those things are very good for gold."

Hedley Widdup, executive director at resources investor Lion Selection Group

In fact, the production of gold dropped by just 3 per cent year-on-year in the first quarter, according to data from the World Gold Council.

Beyond the mines and refineries that produce the gold, however, the wider market has seen "logistical nightmares", the council adds.

Still, this decline in supply, coupled with the logistical issues that may continue to interfere with the delivery of gold, will provide a " tailwind" for the metal this year, according to the Metals Focus 2020 Gold Report. "What we have seen is the self-balancing nature of the gold market and gold doing what we expect it should; providing liquidity as a solution to the uncertainty,"

For investors who are scrambling to safety, this is good news, analysts say.

Coronavirus "has spread fear across the global markets", says Hedley Widdup, executive director at resources investor Lion Selection Group: "[This] led to global responses from central banks and governments to provide stimulus in various ways. Both of those things are very good for gold." In fact, central banks have been driving the rising price of gold for some time now, figures show. Suki Cooper, an analyst at Standard Chartered, said last year that central banks were making an effort to buy more gold in order to diversify and reduce their dollar holdings as a bet against geopolitical risks and other tensions.This trend has now kicked into overdrive, with many of the world's leading economies plunging into deep recessions. Central banks have bought a record 374.1 tonnes of gold this year, and look likely to continue spending, according to the World Gold Council.

At the same time, even sophisticated fund managers have been directing money into gold equities, traditionally the preserve of retail investors.

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Analysts and experts think that gold prices will continue to rise to their highest level ever recorded - not because there is a pinch in the supply, but because economic uncertainty still reigns supreme. "We are close followers of trading and flows in the bullion markets, as well as the underlying technical analysis, most of which point to gold over $US2,000 some time late this year or early next," says Peter Grosskopf, chief executive of asset manager Sprott.

"There is too much debt at all levels," he adds.

"We have borrowed from the future, and there is not enough economy to pay it down.

"That equation requires much more financial repression going forward, and gold is a great hiding place from that process."

Telegraph, London