Investors are grabbing gold bars and coins, seeking the security offered by the precious metal as the coronavirus pandemic destroys economies and forces central banks to print billions of dollars in new money.

But with major gold refineries across Europe shut down due to government-ordered lockdowns, out-of-stock online stores, and numerous passenger planes carrying bullion on the ground, physical gold is becoming de more and more difficult to locate.

“There is gold, it’s just either in the wrong place or in the wrong form,” said Ross Norman, independent analyst and former senior bullion trader at Credit Suisse (CS). “Anyone looking to buy a physical bar or settle a futures contract has a problem.”

Pressure on supply, due to a lack of transportation and processing capacity, has been exacerbated by surging demand, as investors rush to buy the safe-haven asset amid the global economic and financial turmoil. .

Rob Halliday-Stein, managing director of BullionByPost, the UK’s largest online bullion trader, said sales of gold coins had increased fivefold. “It’s unprecedented,” he told CNN Business.

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The company sells everything from Australian gold nuggets starting at around £ 44 ($ 52) to South African Krugerrands for £ 1,530 ($ 1,800) and 1 kilogram gold bars for £ 48,273 ($ 56,853 ).

In uncertain times, there is often a flight to gold because its physical properties make it a good store of value, said Jeffrey Currie, global head of commodities research at Goldman Sachs (GS). “It’s dense, cheap to store, and much easier to move than a commodity like oil,” Currie explained.

As central banks print huge amounts of euros, pounds and greenbacks, collectively known as fiat currencies, to keep their economies afloat, the intrinsic value of the currency decreases.

“We like to call [gold] the currency of last resort, ”added Currie. “When fear sets in and policymakers degrade fiat currencies as they are now, the cost of holding gold relative to other currencies goes down.”

BullionByPost anticipated the peak in demand and secured additional stock in advance. But Halliday-Stein said investors should be wary of buying gold if it is not yet in the seller’s hands, noting that “supply chains are creaking” and it is difficult to predict when more stock will become available.

To add to the pressure on supply, fewer people are reselling gold to dealers despite soaring prices. And those who want to sell find it difficult because restrictions on travel and work mean companies like BullionByPost have scaled back their operations, Halliday-Stein said.

Supply shortages

The tightening is not just affecting small investors. The international market is also in danger of seizing up.

While London, the world’s hub for the physical gold trade, has plenty of 400 ounce bars (worth over $ 420 billion) inside the vaults under the city, bringing these bars to New York in the form in which they are traded there (100-ounce bars) is proving to be a challenge, with precious metal refineries closed and thousands of passenger flights canceled.

The Big Apple gold traders are feeling the pressure. At one point on Tuesday, the difference between the spot price of gold in London – that is, the price of gold for immediate delivery – and futures contracts traded in New York for delivery gold in April rose to around $ 100, said Norman, the independent analyst.

Gold futures allow buyers and sellers to agree in advance on a price to pay when gold is delivered in the future. Spot gold in London and gold futures in New York normally trade between $ 1 and $ 2, reflecting the costs associated with delivering gold to New York.

The widening of the spread indicates that the market is uncertain whether it will be possible to actually deliver physical gold in April and meet contracts. In other words, he assesses a shortage of supply.

This prompted CME Group (CME), which owns COMEX, the exchange on which these contracts are traded, to announce on Tuesday that it would launch a new gold futures contract for April, which allows delivery in 100 ounces, 400 ounces and 1 kilogram of gold. the bars.

“This new contract will provide customers with maximum flexibility in managing physical delivery,” said a spokesperson for the CME group, highlighting “the unprecedented market conditions”.

The London Bullion Market Association, the body that sets standards for how precious metals are refined and traded around the world, said it has offered its support to the CME Group to “facilitate physical delivery to New York” and work in close collaboration with the COMEX “to guarantee the efficient management of the world gold market. “

Gold stocks in London coffers stand at 8,263 “healthy” tonnes, the London Bullion Market Association said in a statement.

The difference between spot and futures prices was around $ 25 on Thursday, suggesting the market is still struggling to function.