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Australia’s largest gold refinery has ramped up production of 1 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 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 are producing as many kilobars as we can, we are probably churning out 7 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 40 yrs. The spread has narrowed to about 21, yet that still compares with just a few USDs 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 do not see them lasting for months and months,” Mr. Hayes said. “This is this is an unusual situation where you have got plenty of physical metal, it is just in the wrong form and in the wrong place.”
While London’s gold market trades large 400-oz bars, historically New York contracts settle with 100-oz bars and smaller kilobars.
A separate outcome of the coronavirus chaos has been an acceleration of the refinery’s work to source additional raw material from beyond traditional suppliers in Australia and neighboring nations including 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 Mr. Hayes.
“We have certainly won some additional volumes out of Africa, and we have got another 4 contracts that are in the final stages of negotiation now“, he said.
The Mint is 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 health crisis, Mr. Hayes said.
“For every coin we make, be it gold or silver, we could probably sell 5 or 6 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.”
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