Market News & Analysis

Top Story

Gold Surging as Refiners Have Trouble Meeting Physical Demand

Gold futures (GC) are screaming higher this morning as demand is surging.  The Exchange for Physical (EFP) market is having difficulties meeting the demand for gold for their clients, and therefore spreads between the futures market and the physical markets are blowing out.

According to Investopedia, an EFP is a private agreement between two parties to trade a futures position for the basket of underlying actuals, which in this case is gold.  Consider a case where gold refiners are shutting down, producing less.  In addition, they can’t move their products because of the shutdowns.  As a result, people who want to participate in the EFP market are dealing with much wider spreads between the futures contract price and the physical gold price.   In addition, market-makers who had gone short gold EFP positions are failing.  The net result is higher gold spot prices, higher gold futures prices, and higher gold spreads between spot and futures contracts.

In addition, yesterday we discussed how the new influx of US Dollars into the economy from TALF will push the price of gold higher, just as it did after TARP was announced in 2008.  This was the initial reason for gold to move back to its flight to safety status.

Over the last 3 days,  spot market gold is from a low of 1455.4 to a high of 1627.7, an increase of 11.8% from low to high.  Yesterday, we posted this chart and noted resistance at 1547.75, 1632 and the year highs near 1702 as resistance.  Price has held 1632, for now.  Support is at the psychological area near 1600, then yesterday’s nights near 1561.

Source:  Tradingview, City Index

The front month gold futures contract has been even more volatile than in the sport market over the last 3 days, trading from a low of 1484.6 to a high of 1698, or 14.4%.  The futures markets have to take time and interest rates into account when trying to determine a fair value for the contract, therefore futures markets usually trade at a higher price than spot.  Notice how price took out the resistance at 1632.4 and is trading need the years highs of 1704.  We can look at the previous horizontal resistance at 1632.4 as the first support level.

Source:  Tradingview, Comex, City Index

With the flood of US Dollars into the markets, firms won’t need to sell as many assets to raise cash for margin (as they can borrow more Dollars), as we saw with the selling of gold last week.  As firms use this new cash as a backstop, there is also new cash to flow into gold.  With the large demand, especially in the EFP market, gold should continue to push even higher.  All-time highs in gold prices could be in the cards over the next few months, above 1912!


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.