How Gold Supply Will Recover From 'Decimated' Inventory Levels

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(Kitco News) - With logistics shut down across the world, transporting physical gold has been exceedingly difficult, resulting in the widest spreads between gold futures prices and those of physical gold bars since the last recession, this according to Kevin Rich, consultant to the Perth Mint.

Rich says we are currently in the opening phases of normalizing.

“There already is more commercial freight being allowed, I think commercial flights are now allowed to carry freight,” he said. “We think that once the virus clears and once transportation gets back to normal, we’re going to see the gold market and the forward market and futures go back to normal.”

The supply chain disruptions are largely to blame for spreads between physical and paper gold, he added.

“In the financial crisis there was no disruption in the supply chain [for gold]. I think this time, what’s happening is refineries are shutting down, so that’s cutting out supply, airlines have stopped flying and that’s cut transportation routes, so I think that’s more of a disruption to supply,” he said.

His comments come as oil suffered the lowest prices recorded in history.

“I’ve traded a lot of different commodity markets over the years, and gold has always been so predictable and so normalized; it has a very smooth contango forward curve. If you look at oil, have you tried trading oil contracts today, the disruptions in a lot of these other markets are a lot more prevalent,” he said.