Demand for gold surged over the past week, with prices up 11%.
After initially trading down heavily in correlation with equities and other risk-on assets, the precious metal has seen revived interest this week. Its price patterns have resembled those of Bitcoin, which also fell precipitously before recovering.
Investors typically buy gold futures to avoid the inconvenience of having gold bars physically delivered. But with a slowdown in the deliverability of gold due to air traffic suspensions and vault closures, there is a risk that futures prices may rise excessively over gold prices.
New York gold futures have witnessed an unprecedented squeeze. If the contracts are held until expiry, physical bullion will need to be delivered to investors. With transport options coming to a halt, the supply chain disruption has investors poised for a situation that has never been experienced before.
The spread between gold futures in New York and immediately delivered gold in London has spiked. What impact that will produce remains unknown given the unprecedented nature of events.
Most of the world is in uncharted waters and gold has not proven immune to that. Many crypto industry insiders point to cryptocurrency as a potential beneficiary.
Given the digital nature of Bitcoin, Catherine Coley, CEO of Binance.US, sees the situation as a perfect storm for Bitcoin demand:
“Despite the market downturn, Binance.US is seeing unprecedented trading volumes, with especially active trading in Bitcoin. We are also seeing heightened interest in stablecoins as investors recognize the importance of hedging volatility during highly uncertain times. Bitcoin has always been built on the idea of a need to send and receive value in a safe and secure way, and that’s not going anywhere.”
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