The Covid-19 pandemic has caused significant disruption to the gold supply chain. Although the supply has already recovered, we still have not seen the consequences of what happened in the past months.
In its latest Investment Update report, the World Gold Council has analyzed the consequences of the disruption of the gold supply chain by COVID-19. The World Council notes that the gold supply chain is truly global. The metal is mined from all continents except Antarctica. Manufacturers then refine it into bullion and coins in many different countries and distribute them worldwide. This geographical dispersion not only confers stability on the gold market but is also necessary to satisfy demand.
However, the Covid-19 pandemic has caused unprecedented disruption at various points in this chain. The impact of this interruption and its effects on investment demand have been the subjects of the study.
The Covid-19 pandemic has caused an unprecedented disruption on the gold supply chain. From mining operations to consumption, all links in the chain have been affected. It has caused some distortions in certain market segments. However, it has also served to demonstrate the elasticity of the supply chain, which implies stability.
According to the World Gold Council, geographic diversity in gold mining production has helped to avoid a collapse in supply. Due to the restrictions, mining activity stopped in primary gold producing nations like China, South Africa, and Peru. However, other mining regions balanced these cuts in production. They had experienced sporadic or no reductions in their operations.
Gold Production decreased substantially
For the Q1 of the year, gold production recorded its lowest level since 2015. Still, this is a modest drop, taking into account the scale of the pandemic.
Gold recycling, which generates between 25 and 30% of the annual supply, was also affected in the first quarter. It dropped by 4% year-on-year, its minimum level in two years.
The 6% increase in the price of gold in dollars should have served to stimulate the sale of precious metal by consumers. However, the restrictions suspended the operations of exchanging gold for cash, due to the closure of shops.
Analysts expect the metal recycling levels to increase, as consumers try to find ways to minimize the impact of the post-pandemic economic crisis.
The restrictions adopted by governments to control the Covid-19 transmission forced the temporary closure of three of the world’s largest refineries in Switzerland. Their refining capacity is at about 1,500 tons of gold per year.
Also, the South African Rand Refinery and the United States Mint suffered temporary restrictions. However, other refineries, such as Australia’s Perth Mint, increased their production rate to meet growing demand. Additionally, Swiss refineries resumed production in a few weeks, easing pressure on the supply chain.
On the other hand, restrictions on international air transport imposed by governments have prevented gold from flowing from the sources of production. As a result of the restrictions, there was a greater priority for medical equipment, forcing the gold sector to seek new forms of transport, such as charter flights.
- Trading Instrument