Gold spreads explode again as traders withdraw for fear

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(Bloomberg) – Signs of dislocation are reappearing in the gold market.

Gold traded in New York and London – two markets that were evolving at the same rate before the coronavirus crisis – diverged.

An ounce of gold sold on Comex was about $ 50 more expensive than in London on Tuesday. Normally the difference would be a few dollars.

The same thing happened two weeks ago when traders panicked that logistical disruptions and flight cancellations would create a shortage of gold bars in New York. The reasons are different this time. There are a lot of bars available, but traders say there is still too much risk and they prefer to stay away.

“You have a bunch of shell-shocked market makers who literally hide beneath their desks and cannot and may not be able to create markets of any size, shape or form,” said David Govett, manager of precious metals trading at Marex Spectron. “Hence the lack of liquidity, small volumes and wide spreads. “

Spot gold was $ 1,654 per ounce at 1:05 p.m. in London, compared to $ 1,703 in New York.

Other market indicators to watch include:

Volume

Comex’s average daily volume last week was 16 million ounces. That’s down 75% from the end of February.The volume tracked by the London Bullion Market Association’s LBMA-i service was around 24 million ounces per day last week, or about half from the end of February level.

Exchange rate for physical

According to Stephen Innes, chief global market strategist at AxiCorp Ltd., the cost of gold futures trading for physical products remains high, suggesting that the market remains tight. again.

Gold supply tightening expected to ease with reopening of Swiss refineries

Stocks

One data point that should calm traders is that there is a lot of metal to deliver against New York contracts. Total stocks on the Comex reached a record 16 million ounces. This includes bars of different sizes eligible for a new contract launched this week.

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