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Updated 00:40 27/05/20

Safe haven demand soars as coronavirus pandemic grows

By Michael Pinson, News Editor

26 Mar 2020

Demand for precious metals has soared in recent weeks as lockdowns aimed to reduce the spread of coronavirus hit more countries across the globe. Gold and silver in particular have seen unprecedented demand, leading to stock shortages across the industry as investors clamour for safe haven assets.

Investor fears over the impact of the coronavirus have been realised in recent weeks, as the number of cases and death toll spiralled out of control in countries like Italy and Spain, leading to severe restrictions for residents in those countries. With the UK and many states in America following suit in the past week, the world is experiencing a level of disruption unknown in modern times.

Stock markets have seen losses exceeding those of the financial crisis just over a decade ago, with the Dow Jones losing a staggering 8,498.93 points in March. The financial impact of the virus, and the resulting lockdowns required to stop it spreading, have barely begun to be considered. Many countries have announced fiscal stimulus packages of billions and trillions in their respective currencies to try and keep the global economy from crashing.

Interest rates have sunk to record lows in several countries, including the UK, to try and encourage banks to lend to struggling businesses, but reducing the returns for those with savings as a result. Governments are subsidising wages to keep people in work, but unemployment is expected to surge in the next few weeks. Recession, a fear already plaguing markets at the start of the year, is now all but certain for almost all major economies in 2020.

As a safe haven asset, precious metals have unsurprisingly seen record demand from investors looking to protect their wealth from any further losses in the stock market, and any subsequent devaluation that could occur as a fallout of the current situation. Government debt, already high ever since the financial crisis, is now set to grow even more, raising more fears of defaults to come in the future.

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GOLD Price Chart 26-03-20
The price of gold in GBP for the past week.

Gold reached a new record price in Sterling earlier this week of £1,395.52 per ounce, rallying after a fortnight of pressure from traders selling gold to cover their losses on the stock market. Many analysts expect gold to continue to climb in the coming months, as gold’s safe haven status is reaffirmed in the minds of all investors.

The silver price meanwhile has been under additional pressure from reduced industrial demand in light of factory shutdowns, but has shown some signs of recovery – rising 16% in the past week. Just last week however the Gold-Silver ratio hit a record high of 127, with more investors arguing that silver continues to be undervalued versus gold.

The surge in demand has caused shortages for many refiners and dealers, with investors buying coins and bars faster than they can be brought in. This has been exacerbated by the logistical disruption caused by the widespread border shutdowns. Europe in particular is home to many of the world’s leading refiners such as PAMP, Metalor and the Austrian Mint, and many have announced factory shutdowns in line with their national government rules. The high demand, low production, and inability to transport it has caused a perfect storm for precious metals that is keeping supply low.

Even as lockdowns lift in the coming weeks and months, the economic impact of the virus will undoubtedly be felt for years to come, and will serve as a fresh reminder why precious metals should have a prominent place in any diverse portfolio.

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