Gold prices sell off as major refineries reopen, analysts look for spot-futures spread normalization
kitco.com
Excerpt...
These closures and logistical issues have led to wide spreads between spot (London market) and futures (New York) prices. Refiners re-starting production might help normalize this spread, which under normal conditions does not vary more than a couple of dollars from each other.
“The restarting of some gold refiners will help to bring the ‘spot’ price of gold to closer to the efficient price discovery in the cash gold market that was seen before the COVID-19 pandemic,” Kitco’s senior technical analyst Jim Wyckoff said on Wednesday.
But to see a complete normalization, the gold market will have to wait until all or most gold refiners and commercial end-users are back to a state of normal operations, added Wyckoff.
Higher production levels will be key for gold traders as they might lower premiums, which surged this past month, said Kitco Metals global trading director Peter Hug.
“With the opening of major refineries globally, we expect production levels of investment product to begin to normalize, which should reduce premiums in the coming weeks. This could be derailed, if investment demand spikes before the refineries are able to reach full production capacity,” Hug said in an email. “The opening up of the global refiners has produced supply for the futures markets for delivery requirements. The spreads between the most active futures markets to cash have contracted considerably, with the contango now almost completely in line with interest carry.”
Logistics issues with cargo also saw some normalization, Hug added. “It’s a tenuous balance, but the market is beginning to return to a more normal pattern.”
This normalization could be translating into some pressure for the gold price in the short-term, TD Securities head of global strategy Bart Melek told Kitco News.
“There will probably be some pressure. Another development is with charter planes, which had a difficult time getting insurance. That seems to have been worked out for the most part, where you can charter a plane and bring in Asian gold or European gold and 400 bars, which you can now melt and settle the comics. We've seen that premium come down to more normal levels here,” Melek noted.
*****
From a technical perspective, gold could test support at $1,680 an ounce, said LaSalle Futures Group senior market strategist Charlie Nedoss. Next support level is at $1,657.70.
|
