During times of financial uncertainty, precious metals will often see an increase in demand. As a result, premium percentages may rise slightly. The current premiums in physical gold markets remain rather high as demand for safe haven assets is picking up.
The Current Gold Premiums are Steep
Depending on where one decides to source physical gold from, paying a premium is either completely normal or very odd. Following the COVID-19 pandemic, there have been a lot of changes to the industry as a whole. A bullion shortage has occurred, even though most mining operations are preparing to resume their normal activities.
Until things go back to normal, however, things will remain somewhat uneasy. Demand for safe haven assets is on the rise around the globe. Most people are concerned over the repercussions of the COVID-19 crisis. Governments decided to print unlimited money and began pending it accordingly.
As the gold supply remains lower than the demand, paying a higher premium will be the only course of action. It is not something that traders, companies, and investors enjoy doing, but it is what it is. Mints and refineries will not be at full capacity for some time to come.
How Premiums Normally Work
While everyone who interacts with physical bullion dealers expects to pay a premium, those percentages are often limited. Paying between 2% and 5% over spot prices is commonly accepted. The higher the price goes, the more one will have to pay for physical gold.
Under the current circumstances, however, a premium of up to 11% is not all that abnormal. For most traders, this would reek of paper gold manipulation, but it doesn’t appear as if something nefarious is going on. The global pandemic has triggered a cascade of effects, and will continue to do so for the foreseeable future.
Gold Price Momentum Remains Strong
One thing that has become apparent during the COVID-19 crisis is how the gold price can bounce back very quickly. Despite a rough period throughout March 2020, the price has successfully continued its uptrend. Even today, the gold price keeps pushing higher, and remains on the road to $1,800 per ounce.
Considering how high premiums are for physical gold right now, the market shows no signs of slowing down. That in itself is both remarkable and somewhat surprising. People are seemingly willing to pay whatever price necessary to invest in safe-haven assets right now.
Assuming this mindset will remain in place, the push to $1,800 an ounce can materialize very quickly. There is no real investor confidence in stocks, bonds, treasuries, or even most national currencies. Very few viable alternatives remain on the table. Investing in gold, silver, and even Bitcoin may very well become a necessity.