How the Coronavirus Pandemic is Influencing the Precious Metals Market

The coronavirus has upended the world economy and the price of precious metals is no exception. What gold and silver watchers have noticed since March 2020 is a jaw-dropping surge in ounce prices, with gold hovering above $1,730 (all prices US) an ounce. 

And when other international turmoil is added to the mix, the coming months could see even more gains for gold. “The gold market at the moment looks very big because of all the tensions going on in geopolitics between China and the U.S. and also China and Hong Kong. This will influence gold to the upside,” said Afshin Nabavi, senior vice president at precious metals trader MKS SA.

What’s driving the high prices is what the pandemic has wrought onto this space: gold bullion is as scarce as it’s ever been in modern history, but the global lockdown only hastened what may have come to pass anyway. It’s been revealed many countries were eager to get hold of as much gold as possible. For the past decade, they have been gobbling up new reserves and bringing it home from overseas storage to an extent never seen in modern times, as this report found.

Why this gold rush, even during pre-pandemic times? “Stocking up has made sense to many countries in the populist climate. It is also a sign of countries diversifying from dollars. The likes of Russia, China and even countries in Western Europe want to break the US dominance of the financial system, having seen it used as leverage in everything from economic sanctions to trade threats.”

The gold supply crunch was exacerbated further when banks such as the Bank of Nova Scotia announced they were closing their metals business. Spot prices could be less reliable, which could be another bruise to an industry dealing with a wide spread between spot. 

An important consideration is how the potential of another surge in covid-19 cases, along with weak economic news coming from major markets like the US, raises more uncertainties for a near-term recovery, and so safe-haven assets such as gold  become more attractive to investors.

The pandemic has also led to people reconsidering the gold they currently own, too, says Spencer Wyatt, a precious-metals industry expert, in an interview. “This rise in unemployment is giving people a lot of time to think about the gold they inherited and how they can keep their cash flow going for them and their family,” he notes.

Wyatt recommends that those who are struggling to make ends meet consider parting with their gold bullion , coins or jewellery in order to get cash ASAP. Staying liquid is critical with so much murkiness heading around the corner as lockdowns ease across the world yet cases haven’t flatlined globally either.

So what will happen to the price of gold in the coming months? “It’ll dip down, go up, dip down, correct itself,” predicts Wyatt, “but I doubt it’ll go under $1,700  US because of the supply shortage, and the pandemic.”

Some analysts have noted how gold fares well during times of extreme deflation and inflation. One analyst told Barrons if more economies reopen and there’s a strong recovery in China and elsewhere this year, there will be inflation, and gold “will do well as bond markets get crushed.” But if the pandemic wafts across the world and economies largely remain muted, “there will be more money printing and debasement, [which] is also good for gold.” 

Realize that doesn’t mean gold is immune to suffering during a liquidity or credit crisis like the one that unfolded in March, he added.

To better understand today’s global climate, it helps to look at past trends. 

In the last 50 years, gold has enjoyed two impressive bull runs. The first began when governments ceded control of gold prices and relaxed prohibitions on private ownership around 1970. That decision released a surge of pent-up demand, and along with political and economic reverberation and a rush of speculative investment, this boosted gold from $35 an ounce to around $800 in 1980.

The rally peaked and two decades of bearish prices followed as central banks sold thousands of tonnes of gold. By 1999, an ounce cost $250.

Then things changed as the structure of the market shifted. European central banks agreed to coordinate sales, thus stabilizing prices. China allowed more people to own gold and purchases skyrocketed. Exchange traded funds (ETFs), which store gold on behalf of investors, also offered an simpler way for people to hoard gold bars.

Between 2003 and 2011, annual gold demand rose from around 2,600 tonnes to more than 4,700 tonnes, according to the World Gold Council. The rally fell silent as high prices hurt demand. 

The 2008 financial crisis came somewhere in the middle of gold’s last big rally – fueling it, rather than starting it. Early in that crisis, gold prices fell quickly as a broader plunge across assets forced investors to raise money by selling what they could.

The same outcome happened as the global spread of the coronavirus caused a market panic.

In 2008 and 2020 alike, investors returned to gold in response to central banks’ huge monetary stimulus that reduced bond yields and raised the risk of inflation that would devalue other assets and currencies.

“Financial repression is back on an extraordinary scale,” analysts at Bank of America said, the Globe & Mail writes, predicting that interest rates in most large countries will be “at or below zero for a very long period of time.”

For those particularly interested in the ETF side of things, a separate Globe article notes how the gold-ETF market in Canada is now valued at nearly $3 billion CAN, double from a year ago, according Ian Tam, director of investment research with Morningstar Canada. Gold-equity and bullion ETFs have all enjoyed double-digit gains so far this year and in the past 12 months. However, “on the whole, equity ETFs have outperformed [bullion ETFs] year-to-date,” he says.

To learn more about what causes the gold price to fluctuate, read this informative blog previously published on our site.

As we noted earlier, if you have gold you’d like to sell for cash and you want to work with a reputable gold buyer, our precious-metals experts can lead you in the right direction. Contact us   to learn how we can help you.