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Gold market snarled by virus lockdown as world races for haven
By Jack Farchy and Justina Vasquez
Wednesday, March 25, 2020
The gold market is creaking, in the latest sign of how the coronavirus pandemic is causing chaos across financial markets.
Just as demand for the metal soars with investors seeking a safe haven from unprecedented economic turmoil, a glitch has appeared in the global market. The price of gold in New York and London has diverged by the most in four decades after lockdowns and grounded planes strangled the supply routes that allow physical gold to move around the globe.
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The strains have rippled through gold trading, with liquidity at some points running thin in a vast market that's dominated by the world's biggest banks and watched by millions of mom-and-pop investors.
Banks and traders typically ship gold around the world on commercial flights, linking the trading hubs of London and New York with vaults and refineries in Switzerland, Hong Kong and Singapore. But as the coronavirus grounds flights and refineries shut down, it's becoming harder to trade between global markets. Silver and other precious metal markets are also being disrupted by the logistics lockdown.
"This isn't anything that we've seen in a generation because refiners never had to shutdown -- not in war, not in the great financial crisis, not in natural disasters,” Tai Wong, the head of metals derivatives trading at BMO Capital Markets, said by phone. "It's never happened. And it happened astonishingly rapidly.”
At issue is whether there will be enough gold in New York to deliver against futures contracts traded on the Comex, which is owned by CME Group Inc. While the larger spot market in London is dominated by 400-ounce bars of gold, only 100-ounce and kilobars are deliverable on the Comex contract. CME has taken some steps to try to address the squeeze. ...
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