Gold stranded by coronavirus may travel on chartered flights

The global gold market has been thrown into upheaval by the coronavirus outbreak. Logistics are becoming increasingly difficult and some leading refineries have been forced to close, all at a time when demand for gold is surging. A key South African refinery said Thursday it’s had to stop shipping to London.

The London Bullion Market Association, which represents gold market participants, said that refining capacity isn’t a problem

The London Bullion Market Association, which represents gold market participants, said that refining capacity isn’t a problem — there’s easily enough plants still operating to meet demand. However, the group is looking at ways to solve the logistics problems and is investigating the possibility of allowing global delivery outside of London.

“LBMA is confident there is more than sufficient global refining capacity,” it said in a notice issued overnight. “Refiners and other market participants are actively engaged with logistics companies to overcome travel constraints and ensure the physical movement of metal via, for example, chartered or cargo flights.”

The disruptions in gold supply chains have combined with surging demand for the traditional haven to drive prices higher. Spot gold is headed for its biggest weekly gain since 2008.

Earlier this week, uncertainty over whether there was enough gold available in New York to deliver against contracts on the Comex drove the spread with London spot prices to the highest in four decades.

While tightness on the Comex may be easing amid signs that investors are rolling April contracts into June, the constraints on transporting gold remain in place. Some wholesalers and retail dealers have said they are running out of the metal and South Africa’s Rand Refinery Ltd. is exploring back-up plans and alternative measures to be able to meet its delivery commitments to the London gold market after commercial flights dried up.

“Headlines have popularized the worries about the ability to buy and deliver physical gold and spreads have blown out,” RBC Capital Markets said in a note. “These concerns are, in many ways, justified, but more so if we begin to see more complete shutdowns throughout the supply chain.”

To be sure, gold stocks in London remain healthy with more than 8,000 tons based on the latest published figures, the LBMA said. While the group didn’t elaborate what locations it may consider for potential deliveries outside of London, New York — another key gold hub — may be one obvious option.

“If it means trucking rather than flights it would certainly help,” said Rhona O’Connell, head of market analysis for EMEA and Asia at INTL FCStone.

In Switzerland, three leading refineries closed after the canton of Ticino ordered all non-essential activities to stop. Argor-Heraeus SA has closed until April 5, while Valcambi SA and MKS PAMP Group’s refinery in Ticino formally shut their doors until this Sunday following a local decree.

The LBMA said it’s got 72 accredited gold refiners located in 31 countries, and the plants still operating are “ready and able to accommodate the industry’s needs.”