Global Elites Clamor for Dwindling Supply of Physical Gold

With the wealthiest from around the world rushing to protect their savings, what will it mean for prices when there isn’t enough physical gold to go around?

Although the price of gold dipped during the broad market selloff over the past few weeks, precious metals have nonetheless been one of the most sought-after assets as panic started breaking out and very few investments gave off an aura of confidence. In particular, investors have rushed to get their hands on physical gold and silver for several reasons, not the least of which being a stock market reminiscent of the one ahead of the 2008 crisis.

Yet keen investors are starting to have trouble obtaining physical precious metals as numerous key facilities involved in processing, dealership and storage close down or experience difficulties. Ludwig Karl, a board member of bullion storage firm Swiss Gold Safe Ltd, spoke about the unusual supply-and-demand dynamics in the gold market.

Although Karl’s firm has been doing well on the storage front as holders pour in to store their precious metals in the high-security vaults, the brokerage side of their business has been impacted by the global pandemic. Swiss Gold Safe usually assists customers with purchasing gold aside from offering storage services, but Karl said that obtaining precious metals has become close to impossible in the current climate, adding that the government has closed most bullion dealers for the time being.

Switzerland is one of the main hubs for processing bullion, making the impact of the crisis all the more palpable. Alongside dealers, processing plants have largely shut down and flight restrictions have greatly hampered bullion transportation. Unlike banks, which tend to purchase bullion by the ton, private investors generally trade inside the kilogram range, making that side of the market the most affected.

Valcambi SA, Argor-Heraeus SA and a branch of MKS PAMP Group, three of the world’s largest refineries, are all based in Ticino, a region of Switzerland that borders with northern Italy. This adds another layer of difficulties when it comes to obtaining physical gold, as Italy is currently the nation most affected by the virus.

Unsurprisingly, the dearth of bullion has driven investors to what would otherwise be secondary choices when acquiring metals. While marquees like South Africa’s Krugerrand or the Canada’s Maple Leaf tend to act as the go-to gold and silver coins, Seamus Fahy, co-founder of Merrion Vaults, noted that investors are more than willing to compromise in order to obtain the metals.

The unprecedented supply strain is happening as gold buyers return to the market, with the metal gaining roughly 8% last week and hitting a high of $1,640 during Friday’s trading session. Some of the top figures in the gold market and finance, such as Egyptian billionaire Naguib Sawiris, veteran investor Mark Mobius and Goldman Sachs, stated that they are bolstering their exposure to gold and advised investors to do the same.

Another interesting takeaway is that the contagious nature of the crisis has forced some mining firms to scale back their activities after already being in a state of contraction for years. When combining this with the well-known issue of gold deposits becoming increasingly difficult to access, it remains to be seen if the latest blow to the mining sector expedites a deep-rooted gold supply glut that has been forecasted for some time.