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Gold bars are flying 11 000 miles to New York to ease supply squeeze

Gold coin, minted bars sales in March jump to highest since 2013.
Image: Bloomberg

Australia’s largest gold refinery has ramped up production of one kilogram bars to ease the supply squeeze in the US that helped propel a surge in the premium for New York futures.

The collapse in air travel that’s grounded passenger jets — frequently used to transport gold products — and virus-related disruptions to some refining capacity has tightened availability of the rectangular bars, typically used to settle the Comex futures contracts.

“We’re producing as many kilobars as we can, we’re probably churning out seven and a half tons of them a week at the moment and we are forward sold well into May,” Richard Hayes, chief executive officer of the Perth Mint, said in an interview. “A very large portion of those kilobars are ending up as Comex deliveries.”

In a chaotic couple of days in late March, the premium for New York futures over the London spot price rose above $70 — the highest in four decades. The spread has narrowed to about $21, yet that still compares with just a few dollars in normal times.

The mint, which reopened a kilobar production line in response to the supply crunch, expects elevated demand to prove to be only a short-term issue.

“Arbitrage issues around the Comex will be short lived and I don’t see them lasting for months and months,” Hayes said. “This is this is an unusual situation where you’ve got plenty of physical metal, it’s just in the wrong form and in the wrong place.”

While London’s gold market trades large 400-ounce bars, historically New York contracts have been settled with 100-ounce bars and kilobars.

A separate outcome of the coronavirus pandemic has been an acceleration of the refinery’s work to source additional raw material from beyond traditional suppliers in Australia and neighboring nations including Papua New Guinea.

The Perth Mint has struck new contracts with some North American gold producers and operations in West Africa in the past 12 months to process their mined material, known as dore. Since supply chains have been disrupted by the virus, more global mining companies have been seeking pacts with the refiner, according to Hayes.

“We’ve certainly won some additional volumes out of Africa, and we’ve got another three or four contracts that are in the final stages of negotiation now, he said.

The facility is also continuing to see strong retail demand for precious metals products in the US and Europe, prompted by investor concern over the potential economic impact of the current crisis, Hayes said.

“For every coin we make, be it gold or silver, we could probably sell five or six of them,” he said. “That strong demand will be a little longer-lasting, I expect, as people have been quite badly frightened by this whole Covid disaster.”

© 2020 Bloomberg

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Yep, that what happens when you get rid of the Gold Standard and your Gold Reserves – May it be a lesson learnt! Plenty of Gold in Switzerland and China – what does that tell you!

Let’s put it this way. I know someone who walked into the Perth Mint recently and asked to purchase a large number of monetary metal bullion coins. I guess one could have asked for the Arc of the Covenant or the Holy Grail given the response. Needless to say she walked out empty handed.

The gold basis is simply the difference between the spot price and the near futures price. In the recent few weeks the gold basis has exploded into positive territory (big time contango). If there was currently a shortage of specie/ bullion that would be resolved in a few months time, then the gold basis would be collapsing or even going negative (backwardation). Clearly someone is lying to us, but the sad thing is those that understand the lie are those that stand to benefit from it. The only thing I can think of is that the “establishment” has drawn a line in the sand of US$1700 that they are going to defend with paper gold. The only way they can do this is flood the market with gold futures at a high contango hence the explosion of the gold basis on the upside. However, there are currently more than 20Oz of paper gold for each ounce of physical. The establishment is becoming increasingly desperate to hold back the tide. Like King Knut it will be a futile gesture. Unlike Knut they are not being honest. Just remember the suckers are those holding paper that will be paid back with irredeemable paper promises of another sort.

Do you agree gold should already be much higher? Bank of America came out this week saying they see gold at $3000/oz, this should be very positive for SA mines, if they are able to mine at full capacity and with a Rand/US$ of R19.

The only reason they decriminalised the ownership of gold in the USA was to create a gold futures market. Paper gold has proved to be the most effective means of containing the gold price. Yes, gold should be a whole lot higher. Unfortunately the ANC destroyed the gold mining industry in SA. Even Western Australia produces more gold. South African gold resources are massive but require large capital investment and a low sovereign risk for investment. The last two gold mines to open in South Africa were planned before the ANC took over.

Wow, imagine blaming the government for low grade ore. I guess anything is possible when you have a victimhood mentality. Strange how gold mines operate in war zones when the deposit actually exists.

Would love to hear where all these massive gold resources in SA are? Yet another clueless braai geologist.

Jalap, let’s speak resources: South of Johannesburg in the Main Reef/ Main reef leader package 110Moz (Deep Central Rand, South of the Syferfontein Dyke). In the Evander Goldfield (Poplar/ Rolspruit) about 10-20Moz. In the Potch Gap about 10Moz. In the Target area including Jeanette (hard to mine due to shale) about 10 -20Moz. White Waters northern Freestate 10Moz. Between Joel and Merriespruit (Bloemhoek/Doornrivier) about 6-10Moz. East of Harmony (original mine) at least 10Moz, possibly more. Shallow Central Rand Main Reef 3Moz (okay its flooded). Western Ultra Deep Levels ???Moz. Down dip Driefontein ??Moz. South Deep 80Moz. Even at Sallies there is a lot of gold left. Moz= million ounces Au. The main issue is it is deep (not low grade) and there is no infrastructure to get to it in most cases. This requires a huge capital investment and long lead times. Under the ANC regime, the sovereign risk, high discount rates and BEE kills it. Dead.

Richard Hayes sounds like he does’nt want to see demand for gold! How can you have a CEO of a gold refinery who’s such a “wet rag”!

Noticed most gold platforms are out of stock.
Fortunately, we are still buying gold as usual ex Germany.

I agree, the German supply line is intact and more affordable.

Just hoping Sibanye keeps going up!

US stealing South African gold

End of comments.

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