Paper Gold Further Disconnects From Physical Bullion

In a further sign of just how disconnected physical gold bullion pricing is from that of paper gold, last night BNN Bloomberg reported that South Africa has effectively shut down the export of refined gold to that of London, one of the world’s largest stores of the precious metal.

As per the BNN Bloomberg’s report, the Rand Refinery Ltd, the only refiner of gold on the continent of Africa, has suspended shipping refined gold to London. The halt is largely a function of commercial and private flights to the UK’s capital being halted until the end of April as we previously reported. While the refiner is currently exploring back-up and alternative measures, no solution has been determined as of yet.

The London Bullion Market Association is reportedly looking at solutions to the problem that include accepting global delivery of the physical metal at locations outside of London to enable contracts to be met.

The refiner itself is also now operating at a reduced rate as a result of ongoing lockdowns due to the coronavirus pandemic, despite being exempted from the lockdowns. With major markets such as London effectively cut off for the interim, it makes little sense for the refiner to run at full capacity.

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South Africa is one of the world’s largest exporters of gold, with the country exporting approximately $16.9 billion of the metal in 2017. Of that, roughly 25%, or $4.26 billion was shipped to the United Kingdom.

Comparatively, during the same time period imports of gold from South Africa accounted for 12% of the UK’s total gold imports, marginally more than that of Switzerland’s $4.24 billion which has also faced numerous refinery closures as a result of the pandemic.

Despite the logistical issues facing the physical bullion markets globally, paper gold has yet to react, with the spot price of gold currently trading at $1,628, down 0.13% on the day.

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