The rising demand for gold outstrips supply
The panic around the coronavirus has ignited the demand for gold and the disruption in the global supply chains is making gold harder to get to. Refineries and mines are being shut down, commercial flights are few and far between, and market volatility makes investing in gold more appealing to retail and institutional investors as a way to shield their portfolios from any potential losses.
The gold futures market in New York acts as buffer to the price cycle of this commodity. With supply chains disrupted traders are not able to gain physical access to bullion in order to settle those contracts and have the bullion flown to New York.
Gold has a price cycle which runs in 8-year cycles, 6-month cycles, and common cycles (these last 1-month). Cycles occur as a result of simple supply/demand mismatch and are closely linked to oil and gas prices as well as inflation.
A pandemic will have a significant effect on global economies where we will see inflation rise. In turn the price of gold will also continue to go up as it will with the increase in demand. As history has shown, these cycles are inevitable. In addition, the disrupted supply chain may have an adverse impact on small and mid-cap companies’ gold production and revenues in the short-term. In the long-run supply will catch-up with demand.
