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Ronan Manly

Ronan Manly

Ronan Manly is a precious metals analyst with BullionStar whose blogs
often cover current themes including what's going on in the
London gold market and the gold activities of central banks.

In gold market coverage, Reuters confuses key points on demand, supply and pricing

  • Date
  • Author Ronan Manly
  • Comments 4 Comments

Unprecedented demand for physical precious metals in an environment of equally unprecedented supply chain delays, creating real and present disconnects between the price of physical and the prices of COMEX/LBMA – all great material for reporters covering whats going on in the physical gold market in Asia. In theory you would think so. But not if you’re a Reuters reporter.

Every so often, Reuters contacts BullionStar, and we provide them with some observations on what the state of physical gold demand has been in Singapore during the most recent week, as well as explanations about the gold price and gold price outlook.

So when Reuters contacted us this week, we as normal, told them the lowdown, about a week which was probably one of the most interesting ever from a physical bullion standpoint. But unfortunately, Reuters made very little use of what was objectively very valuable and insightful information for those interested in the gold and wider markets. Given that oversight, we now think it’s useful to share all of the information and observations that we provided to Reuters, and have done so below, in the exact form of questions (that were asked by Reuters), and the answers (that were provided by BullionStar).

How has the Singapore physical gold market been faring amidst the coronavirus pandemic?

This week and last week have been BullionStar’s busiest weeks ever, with record numbers of customers visiting the bullion shop and showroom in Singapore, and record number of orders from customers buying bullion bars and coins. The demand for physical gold and other investment precious metals in Singapore has been unprecedented. This has led to some of our bullion products being sold out.

Customer order volumes are up exponentially, around 10 times more than usual. All of our staff have been extremely busy serving customers throughout the day, every day. Demand has been so strong that BullionStar has had to introduce minimum customer buy order sizes because we are so flooded with orders.
 

This surge in demand for physical bullion is across the board and is not just in Singapore, with dealers globally facing the same demand surge for physical. Given the huge increase in demand, there is now a supply squeeze in the precious metals supply chain, with gold refineries, mints and wholesalers running out of stock. These bullion shortages are getting worse every day, and there are long delays on replenishing inventory.

Are you seeing any safe haven buying at all?

Practically all of this gold buying and surge in demand that we are seeing is safe-haven buying by savers and investors due to the ongoing financial panic and collapse in wider financial markets. Customers are buying investment precious metals as a form of wealth preservation and insurance against the collapse of the current monetary system.
 

How about silver?

Yes, demand has surged across the board for both gold and silver, for all physical precious metals bars and coins. Premiums on silver bars and coins are very strong, indeed they are noticeably higher than on gold.

What are the premiums or discounts in Singapore this week?

You have to understand that this surge in physical bullion demand and associated supply chain shortages is taking place at the same time as the spot prices of gold and silver have fallen sharply. i.e. the spot prices as traded on COMEX and the London unallocated system have fallen.

When we talk about premiums, we mean premiums of physical gold and silver prices in excess to the COMEX/LBMA spot prices. The combination of huge physical demand and difficulty in securing re-supply has caused bullion dealers, ourselves included, to raise premiums. Premiums have risen on both the buy and sell side, i.e. for customers buying precious metals and selling back precious metals.

These premiums have emerged because the paper gold markets of COMEX and the LBMA are not reflecting the unprecedented demand and supply situation that is now facing the physical bullion market. Essentially there is now a real price disconnect between prices for paper gold (COMEX/LBMA) and physical gold.

What is your outlook for the market? 

The outlook depends on the market. There are two markets, the physical market for gold and silver, and the paper gold and silver markets of London and New York.

The physical gold market is on fire with huge demand. There is extreme demand and scarce supply. It is unprecedented.

Gold pricing on COMEX and LBMA, veneus which trade unbacked gold synthetics and derivatives, is flawed and broken. It’s as simple as tat. Price discovery is not working in the bullion bank dominated COMEX and LBMA system. Price discovery needs to transition to use physical demand and supply for precious metals.

If this price disconnect continues, it will be increasingly difficult to buy physical precious metals using fiat currency.

Are we likely to see a pick-up in the near term?

This question is illogical. The physical market has picked up. Its stronger than ever. If you mean a pick-up in the gold price as quoted out of COMEX and London LBMA, the future of that price could go either way. It could either collapse or trend higher.

 If the spot price of the paper gold market rallies from here, it might make an attempt to balance physical demand and supply.

But if the spot price does not move up strongly, bullion dealers around the world will increasingly stop pricing metal using this spot price. The price connect between the paper and physical markets would widen, and the entire paper pricing system (of COMEX futures and LBMA unallocated metal) could implode.

In a volatile week, spot gold prices fell below $1,500 level also amid margin calls and rush for cash. How did the volatility impact physical gold demand and prices?

The overall volatility has led to a huge surge in demand for physical precious metals and corresponding widening of premiums to the spot price. But it was not the volatility of the spot gold price that triggered physical gold demand, rather it has been the unfolding global financial crisis and the rush to safe haven tangible precious metals in light of this crisis. Savers and investors in precious metals are doing what they always do in financial crises. They are attempting to preserve their wealth.

What are your expectations in terms of spot prices over the rest of this month? And the second quarter?

The direction of the gold spot price over the rest of the month and into Q2 could go either way. It depends on how trading in the COMEX and LBMA markets pans out, and how motivated the central banks, bullion banks and regulators are in wanting to prevent an LBMA/COMEX market collapse that could be triggered by the current demand – supply situation in the physical gold market.

End of Q&A. Following the above responses being sent to Reuters, Reuters on Friday published its regular weekly wrap-up commentary for the Asian gold market, this week which it headlined as “Asia Gold-Singapore demand surges, India discounts narrow sharply on price fall”.

The article quoted me as follows:

“‘The overall volatility has led to a huge surge in demand for physical precious metals … it has been the unfolding global financial crisis and the rush to safe haven tangible precious metals in light of this crisis,’ said Ronan Manly, precious metals analyst at BullionStar Singapore."

While a quote from Reuters in normal times is fine and dandy and better than no quote, it was disappointing in this instance to see that the Reuters article failed to discuss any of the important issues which I had explained to them about:

  • • Unprecedented precious metals supply chain delays / supply squeeze
  • • Substantial physical premiums over the spot price
  • • Flawed price discovery for gold and silver prices on COMEX/LBMA
  • • Real disconnect between physical and COMEX/LBMA prices
  • •The possible collapse of COMEX/LBMA pricing

In fact, despite explaining in depth to Reuters reporters (i.e. the above Q&A) that the huge surge in demand and associated scarcity in supply has led to a disconnect between the prices of physical precious metals and the prices of ‘paper’ as traded on COMEX/LBMA, Reuters still managed to totally confuse the issue in the introduction to its article where it stated that:

“Physical demand for gold jumped this week in Singapore as buyers took advantage of a recent slide in prices after investors dumped the metal to raise cash, while discounts in India narrowed despite closures due to the coronavirus outbreak.”

Let’s take a quick look at this introductory sentence from Reuters. Overall, the facts are completely wrong and muddled. Physical demand for gold did not jump due to buyers taking advantage of a slide in prices. There has been no recent slide in physical prices. In fact, prices for physical gold and silver have actually surged as we explained to Reuters.

Furthermore, investors have not ‘dumped metal’ ‘to raise cash’. In fact, investors in physical precious metals have been buying 10 times more physical gold and silver than normal. That is why there is a supply squeeze across mints, refineries, bullion wholesalers and bullion retailers.

It is on the COMEX and LBMA venues where prices have fallen, and those prices have fallen due to those markets trading unbacked synthetic and derivative ‘paper’ unconnected to the physical gold and silver markets. That is why there has been a price disconnect between the price of physical and the flawed price of paper on COMEX/LBMA. In short, Reuters, in an article supposedly about the current (real-time) physical gold market in Asia, is not only not making any distinction between what is happening on the ground with physical demand and supply, and what is happening with ‘screen’ prices coming from COMEX and bullion bank price feeds, but they are totally confusing the two phenonema as being the same thing.

Unbelievably, in the same article, Reuters also claimed that in Hong Kong, physical gold demand is ‘soft’. It did so by quoting Refinitiv, which is, wait for it,… part of the Thomson Reuters group:

“Physical gold demand remains soft, some bargain hunters but not much,” Samson Li, Hong Kong-based precious metals analyst at Refinitiv GFMS, said.

(Note – Thomson Reuters Financial & Risk changed its name to Refinitiv in mid 2018. And GFMS was bought by Thomson Reuters in 2011).

But Refinitiv GFMS in Hong Kong is not a gold dealer. If the Reuters reporters had asked a major gold dealer in Hong Kong, such as LPM Group, how physical gold demand is right now in Hong Kong, they would have received a quite different answer. For as recently as today, LPM Group sent in an email to its customers stating that, in what they describe as an “unprecedented period“, they have experienced a significant surge in demand for precious metals in the last few weeks" and are working around the clock to dispatch orders. Which is the exact opposite of what Refinitiv GFMS stated and makes the Refinitiv statement look absurd.

Back in Singapore, what are we to make of the Reuters article?

Better than nothing must be the conclusion, but not quite the full story by a long shot. For while it does mention the surging demand, Reuters would be more credible in reporting about the Asian physical gold markets if it actually mentioned the growing precious metals supply scarcity, and most importantly mentioned the price disconnect between price discovery in the physical market and price discovery in COMEX/LBMA.

But alas, COMEX/LBMA ‘price discovery’ and how its a fantasy compared to real world physical gold and silver transactions is probably a bridge too far for Reuters to address given its close ties to the banking and financial establishment. But here’s hoping!

The Reuters article discussed above is titled “Asia Gold-Singapore demand surges, India discounts narrow sharply on price fall”, and can be read on the Reuters website here, and also on such websites as The Straits Times here, Yahoo Finance here, and Canada’s Financial Post here.

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