Gold Spreads Widen as Safe Haven Narrative Strengthens

Gold prices have almost fully rebounded to their seven-year peak as the safe haven narrative for the precious yellow metal strengthens. Demand has been so high that supply has been disrupted, resulting in larger spreads as people start paying a premium for the asset.

Gold spreads widening

Investor and chart guru Peter Brandt has observed that gold spreads went from a premium last week to dumping on Friday due to supply disruptions.

Gold #GOLD $GC_F spreads collapse

April-June Gold spread went from premium June on Wednesday to $23 under the June on Friday due to disruptions in Gold delivery. LBMA working with major banks to facilitate delivery of gold into NY pic.twitter.com/eukKYIkJlf

— Peter Brandt (@PeterLBrandt) March 29, 2020

Late last week it was reported that huge spreads were occurring in the gold market, with pricing for futures contracts way above spot prices. [MarketWatch] Industry analysts attributed the volatility to a lockdown in the two biggest gold hubs in the world — New York and London. So many traders working from home caused a breakdown in the marketplace. From a seven-year high of $1,675/oz earlier this month, gold prices dumped almost 12% as global stock markets collapsed through March. Since then the asset has recovered almost fully to tap $1,660/oz last week, according to the charts. A pullback to $1,627/oz had occurred by the end of trading on Friday as stock markets recovered a little following the massive stimulus package announcement by US congress. According to Kitco, gold markets could be further impacted next week as the US surpasses China for COVID-19 infections. The closure of gold mining and refining centers could further affect supply and markets, with premiums paid to purchase the commodity or futures remaining high, according to analysts.

Bitcoin on-chain metrics comparison

Market metrics for Bitcoin are painting a slightly different picture. According to Bitinfocharts.com, average transaction fees have increased this year by over 500% to a 2020 peak of $1.768 on March 20. This would have been in the height of the big crypto market selloff, as fees have now returned to around $0.75. Bitcoin hash rates have also tumbled from their all-time high of 133.29 EH/s on March 5 to just over 100 EH/s at the moment. The 25% decline could be the result of unprofitable mining operations closing down due to the price collapse. Hash rates could decline even further if more miners capitulate following the halving in just 45 days. The Bitcoin ‘fear and greed index’ is buried in the red this weekend, which means further losses could be in the cards.