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Monday, 28 February 2022

The dizzying rise of the gold price

The dizzying rise of the gold price

The pandemic and geopolitical instability pushed the price of gold to soar. The experts are also sure that the price will not decrease any time soon as the yellow metal, the so called “safe haven”, has always been the thermometer of crises. And after days of rises caused by the geopolitical situation, which had led to a breach of 1,900 dollars and 54 euros, the invasion of Ukraine made gold jump over 56 euros per gram and 1,960 dollars an ounce (55 , 88 and 1,948.44 at the news of the opening of hostilities) reaching and exceeding, as far as the Euro is concerned, the peak of August 2020, when the price stopped at 56, reaching however over 2 thousand dollars.

This event also takes place in an already complex context, starting with the consequences of the pandemic on finance, logistics and procurement.
Oliviero Villa, sales manager of OroVilla and Bancovilla and Ivana Ciabatti, owner of Italpreziosi were consulted by Preziosa Magazine to interpret the last minute facts and draw a comprehensive picture of the raw materials situation.

"The global economic recovery, which in 2021 was faster than expected and increased the demand for raw materials and semi-finished products, is not matched by an adequate growth in supply. This has led to a marked increase in prices, which have reached record values in twenty years"

"The causes of this situation are different: conjunctural, structural, geopolitical and speculative - underlines Ciabatti - Of course the trigger was Covid, which led to a reduction, if not a block of production. Then a global economic recovery that in 2021 was faster than expected and increased the demand for raw materials and semi-finished products, was not matched by adequate growth in supply. This has led to a marked increase in prices, which have reached record values in the last twenty years. Beyond precious metals, the price of which has risen more moderately, I am thinking of gas, oil, copper or iron».

The problems, moreover, according to the former president of Federorafi, are linked to a large number of factors, including the turmoil in the global value chain, caused by the crisis: problems of logistics, global container traffic, restrictions imposed in some Chinese ports to contain the outbreak, transport costs increased.

Difficulties that also affect gold closely, so much so that even Ciabatti, a global operator in the sector for over three decades, found himself faced with an unprecedented situation. «After 35 years of work, for the first time in 2021 we had problems finding raw materials. In the face of strong demand in Italy in the gold, jewelery and silverware sector, for which 2021 was a positive and important year, we encountered many difficulties in supplying both gold and silver. In addition to the problems due to the fact that some mines have had outbreaks».

The situation of metals for industrial and investment use, on the other hand, seems to be different, as explained by Oliviero Villa, who deals with the metal bank, refining and investment ingots and coins for the company.

"As far as we are concerned, there is enough material, both from the market - therefore recycled metal - and from traders, who send us pure gold, silver, platinum and palladium. Instead, longer delivery times are required for secondary ones, such as iridium, rhodium and rutelium, used on an industrial level".

The problem, on the other hand, arises on another front. «The most difficult thing is to find the investment coins. For example, the pound usually has an immediate delivery, while the 2022 delivery takes four weeks or more. I don't know if this is due to the additional bureaucracy following Brexit or the shortage of material. Even fairly common coins are now difficult to find and this raises prices ».

And the problems of procurement are not felt even in the area that deals with industrial and semi-finished supplies, even for the goldsmith sector, where the demand for the latter has increased significantly, as a result of the recovery, but also of the Industry 4.0 plan, which pushed mechanical processing.

In short, the amount of raw material in circulation, according to Villa, is not the most relevant element in the increase in prices. "Gold has always been the safe haven asset par excellence - he comments - The increase in precious metals is due to many factors, from inflation to the conflict between Russia and Ukraine, to the relationship between the US and China. The scarcity of material is only one of the factors».

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