Breaking Down the link between Gold CME future and OTC spotAfter previous weeks of strong sell-offs on gold, in the back of USD strength, two major reasons have been driving gold prices higher from Monday 23rd March.
Secondly – and most important – due to the coronavirus outbreak, three of the major refineries worldwide have suspended gold production in Switzerland. As of now they will be suspended between 29th March and 5th April. This decision produces a divergence in the offer between the physical GOLD and the futures market.
The effect on the market is huge, given that Switzerland is a crucial hub for the precious metal, 80% of the world supply goes through Switzerland, 70% are in the region they decided to suspend their operation and the physical market is going to be materially impacted as a result.
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Traders have been facing today (24th march 2020) a significant increase in the volatility leading to gold spreads blowing out, starting from the Asian session and expanding during the all European and American ones.
During our activity today, we had the chance to speak directly with some dealers in one of the tier one banks LPs, confirming that the link between CME futures and OTC spot has broken down.
Here at Mayfair Brooks, our outlook is still very much long Gold, which it has been pretty for the last few years, where we are buying any dip possible and extending our positions. With the world in turmoil, we believe we are going to see the gold price break all records, by testing its all-time highs at $1,900, eventually breaking it and going past the $2,000 mark.
We will keep an eye on the markets though and remember that the markets dictate our trades and not the other way round. Especially in the times we live in now.