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Implications for precious metals investors

As the long-awaited “second wave” of the corona pandemic sweeps through Europe, another round of severe restrictions, travel bans and rules that prevent the proper function of international business and trade threatens to once again disrupt all kinds of sectors, including the gold industry. 

Lockdown 2.0

Until only a couple of months ago, multiple heads of state, government officials and all kinds of experts were openly acknowledging the serious risks of another lockdown and tried to reassure citizens, claiming it could be avoided. And yet, here we are today, with most European nations under another near-total economic freeze. There is very little that differentiates this lockdown from the last. In some places, some schools remain open and some exceptions are being made for business travel and commuters, with strict restrictions. Overall, however, the severity and the extent of the economic damage of the policy can be expected to be similar, if not even worse, to what we witnessed after the first shutdown directive.

As many precious metals investors will undoubtedly recall, the disruptions that were inflicted upon the sector during the first lockdown were severe. Border closures, forced shutdowns of refineries, logistical and transport chaos, and an explosion of demand, all created widespread shortages and record delivery delays in the physical precious metals market. 

A lot of retailers had to contend with incredible order backlogs and bottlenecks, while they faced significant procurement pressures with supply shortages. As a result, we witnessed considerable premiums and clients often experienced long delays. It is therefore not unreasonable to fear a repeat of this scenario as the lockdowns intensify across the continent. 

The situation in Switzerland 

As Europe’s and the world’s major gold hub, the rules and restrictions that can affect production, trade and transport in Switzerland obviously play a major role and are of great concern to precious metals investors. 

Overall, the internal Covid-related regulations and policies have so far been somewhat more relaxed and permissive in the small alpine nation, especially compared to its neighbors and the rest of its Western peers. There is no total, national lockdown, nor is there a central directive to stop all economic activities and remain confined at home, as is the case elsewhere in Europe. There are, however, different approaches on a cantonal level, as the 26 cantons have autonomy on health matters. Some cantons, especially in the French-speaking regions, have chosen to adopt much harsher measures than others, as well as partial lockdowns, including the forced shutdown of restaurants, bars and sports facilities. 

Nevertheless, the Swiss gold industry is also affected by measures taken by neighboring countries. This especially relevant and concerning, as the Italian Premier, Giuseppe Conte, announced fresh border closures just a few days ago. These new restrictions mean that all tourism, leisure, shopping travel is prohibited and the northern border is largely closed with Switzerland. Obviously, this has serious implications for local business owners and for all sectors that rely on tourism, with Ticino being particularly severely impacted.

However, the new rules do make some exceptions for business and trade border crossings at the moment. So far, workers and commuters are allowed to pass through, and that is good news for Swiss refineries that in some cases heavily rely on Italian employees. What’s more, it seems that the exceptions that are presently in place will likely help the sector avoid the shortages and large-scale disruptions that we saw during the first lockdown. Another key difference this time around, is that there are enough metals to be refined in Switzerland, whereas last time, there was a shortage of that too, due to the sudden transport restrictions and logistical cross-border chaos that ensued. Thus, any disruptions this time are more likely to be caused by labor problems and a weaker workforce, rather than the lack of raw metals themselves. 

It is still important to highlight that there is no guarantee that these exceptions will remain in place. Officials from either country have made no commitments on this point. To the contrary, all public statements generally tend to leave all possibilities of further escalation purposefully open, which indicates that no present exception should be taken for granted. 

So far, we have already witnessed a noticeable increase in delivery delays from major refineries. For instance, we saw delivery times be extended up to 4 months for physical silver, and up to 1-2 months for gold. Although the situation is not at this point as dire as what we saw during the first lockdown and we can’t be sure if it will in fact persist, or be summarily resolved, I do think it is important to give a heads up to investors. Naturally, I have no way of knowing if this will escalate and if we’ll see shortages again, but it’s still wise to keep these possibilities in mind and to plan accordingly. 

What is even more important, no matter how this trend develops, is that precious metals investors exercise great caution and due diligence in their selection of partners, retailers and advisors. Little details can make a huge difference when it comes to buying and storing precious metals and working with reputable companies and professionals with a long and solid track record is key. Not only does this offer a much better chance to get your metals as fast as possible without paying high premiums above physical market levels, as established retailers took advantage of the summer months to adequately prepare and stock up, but it also addresses the risk of fraud, that tends to skyrocket during uncertain times like these. 

Claudio Grass, Hünenberg See, Switzerland

This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland. 

This work is licensed under a Creative Commons Attribution 4.0 International License.

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