Gold Surging as Refiners Have Trouble Meeting Physical Demand

03/25/2020 10:45 am EST


Joe Perry, CMT

Market Strategist,

Tension between the futures and physical gold market could provide buying pressure, reports Joe Perry.

Gold futures screamed higher Monday as demand surged. 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 three days, spot market gold moved from a low of $1,455.40 to a high of $1,627.70, an increase of 11.8%.  Yesterday, we posted this chart and noted resistance at $1,547.75, $1,632 and the year highs near $1,702 as resistance.  Price has held $1,632, for now.  Support is at the psychological area near $1,600, then yesterday’s nights near $1,561.

Gold Spot
Source:  Tradingview,

The front month gold futures contract has been even more volatile than in the sport market over the last three days, trading from a low of $1,484.6 to a high of $1,698, 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 $1,632.40 and is trading need the years highs of $1,704.  We can look at the previous horizontal resistance at $1,632.40 as the first support level.

Gold Futures
Source:  Tradingview, Comex,

With the flood of U.S. 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—above $1,912— could be in the cards over the next few months.

Joe Perry holds the Chartered Market Technician (CMT) designation and has 20 years of experience in the FX and commodities arenas. Perry uses a combination of technical, macro, and fundamental analysis to provide market insights. He traded spot market FX and commodity futures for 17 years at SAC Capital Advisors and Point 72 Asset Management. Don’t forget that you can now follow’s research team on Twitter: and you can find more of’s research at

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