by Nathan McDonald, Sprott Money:
In last week’s article, I pointed out that the price of gold bullion was showing impressive strength, threatening to surpass its old all-time high of $1,920.70 USD per oz., set previously nine years ago in 2011.
Well, That Didn’t Take Long
To say that gold bullion started the week off strong would be an understatement. It opened with fantastic gains that continued to build momentum into the after-hours trading session, with futures hitting a stunning $2000 USD per oz. before correcting lower.
(Chart source, Zerohedge)
This significant surge higher was founded on all of the chaos we have discussed over the past few months, including but not limited to the ongoing COVID-19 pandemic, the trade wars between the United States / China, the political chaos, and of course, the beatings that economies around the globe continue to take.
However, the spark that truly ignited this move higher was the statement by the U.S. Mint that they were reducing supply to authorized distributors due to the fact that they cannot meet demand under their new COVID-19 working conditions.
“The U.S. Mint has reduced the volume of gold and silver coins it’s distributing to authorized purchasers as the coronavirus pandemic slows production, a document seen by Bloomberg shows.
The Mint’s West Point complex in New York is taking measures to prevent the virus from spreading among its employees, and that will probably slow coin production there for the next 12 to 18 months, the document shows. The facility is no longer able to produce gold and silver coins at the same time, forcing it to choose one metal over the other, according to the document, which was presented to companies authorized to buy coins from the Mint last week.”
This restriction—only being able to produce either gold or silver coins at one time, but not both together—means that a massive source of new supply entering the precious metals market will be greatly diminished for the foreseeable future.
This comes at a time in which precious metals are entering a new upward phase of significant strength, as it looks more and more likely with each passing day that we are heading into a strong new bull market for the metals.
(Chart source, goldprice.org)
Premiums for both gold and silver bullion were already high, with the demand for physical, real precious metals seeing a significant surge since the outbreak of the coronavirus.
However, this large reduction in new supply hitting the precious metals market means that premiums for physical gold and silver bullion will only get higher in the coming months, as those seeking safe haven assets continue to chase the price of precious metals higher, hoping to protect themselves from the coming economic and political storms just over the horizon.
At the onset of 2020, I stated that both gold and silver bullion appeared to be setting up for a slam dunk of a year, with both likely to experience sustained and long-term demand as Central Banks continue to buy the metals and as individual / institutional investments also join in the fun. This was before we knew about the COVID-19 pandemic and the havoc it would inflict upon the world.