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Gold bid/offer spreads blow out to $100 in loco London market

The one thing you could always say about the gold market is ... it is highly efficient. Super-tight bid/offer spreads and even the gold refiners upgrade the stuff for next to nothing. I have seen loco Mali riverside panners getting spot less 2% for unrefined flecks of gold, while wealthy investors pay spot plus 50 bps for the shiny stuff loco London - upgraded and refined to 99.99% purity with all the confidence that a "London Good delivery" refinery gives.

Less so today.

Supply disruptions have seen gold refineries around the world being shuttered, bullion showrooms closed, and even online webshops suspended owing to lack of available metal ; even the ever-reliable interbank bullion market is in something of a pickle today.

The bid/offer spread - the difference between the buying and selling prices quoted in the interbank market - is typically around 0.06%. That is tight ! Today however that spread has blown out to over $100 or 7% - an increase of over 100-fold. Evidently the lack of liquidity in the spot market has meant that market-makers are clearly reluctant to take on a trade. With physical supply much diminished, it follows that taking on a position carries significant inherent risk - especially with physical supply drying up rapidly. In short, trading gold has become expensive - not only is underlying price much elevated, but the cost of getting in and out has risen very considerably. It is a reflection of our times.

Meanwhile many gold refineries are advising they will be closed for about 4 weeks, but with deaths in the West set to peak in about 6 weeks time, we could foresee no return to supply normality for another 6 months or so. 

Meanwhile, in an unprecedented action the LBMA has offered CME, the New York gold futures market, with support with this statement :

"The London gold market continues to be open for business. There has, however, been some impact on liquidity arising from price volatility in Comex 100oz futures contracts. LBMA has offered its support to CME Group to facilitate physical delivery in New York and is working closely with COMEX and other key stakeholders to ensure the efficient running of the global gold market."

We live in unusual times and nowhere is this reflected as much as in todays gold markets - normally seen as providing ballast to the ship in choppy seas - well today the gold market itself is looking uncharacteristically shaken.

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