COVID-19 pandemic has affected nearly every industry around the world. One industry you may have forgotten about is that of gold. Around the world, the production, transportation, and refining of gold have been severely disrupted since the start of the pandemic, and yet it has persevered.
Hector Sosa Flores is the Axios Group, LLC founder, and is a San Diego, California, native. Flores has been a multi-business owner for most of his life. Axios Group manages its mine in Brazil and is known in South America as one of America’s largest gold consolidators. Hector provides insight into how COVID-19 has impacted the gold supply chain and what he predicts the future of gold will look like.
The Gold Supply Chain
According to Hector Flores, COVID-19 has affected every single aspect of the gold supply chain, from the production to the investor. First, several gold mines worldwide halted production entirely when the pandemic began to reduce the workers’ possible exposure to the virus. Some mines chose to do so on their own, while others were forced to do so by their governments, who had put restrictions in place due to COVID. It naturally led to a reduction in the amount of gold being produced.
The next stage of the supply chain is delivery. Once mined, the gold is then transported to refineries all around the world. However, transportation became more difficult during COVID-19 due to the severe travel restrictions in almost every country worldwide. Many countries shut their borders altogether, making it harder than ever before to refine gold. To make matters worse, many flights were canceled, with some airlines shutting down temporarily. The airlines that were still flying were devoting much of their fleets to transporting medical supplies, which was the top priority. Thus, international border closures, compounded with the increased cost of delivery by air (the most common way that gold is transported), led to less gold being transported.
The refineries themselves were the next aspect of the supply chain to be affected. Refineries depend on gold production to do their jobs, but with a reduction in gold mining coupled with COVID restrictions within their labor force, only a small amount of refined gold could be produced. Second to the last are the metal traders, who were forced to deal with limited supply and increased delivery costs. These increased costs had a ripple effect and carried on down to the supply chain’s final stage, the end-users. There is no denying that the price of gold has gone up since the pandemic began. Hector Sosa Flores asserts that gold is in high demand, yet there is still a relatively low supply, resulting in higher prices for buyers.
Renewed Interest in Gold
There have been patterns throughout history that when a country is going through a period of economic uncertainty, investors will turn to stable commodities, such as gold. Thus, given that the world as a whole is in an economic recession, it was only natural that there was an increase in investor demand for gold, shares Hector Sosa Flores. Considered a “haven” investment by many, just as gold rose in price, it was also growing in demand. Flores claims four main financial markets for gold: futures contracts, coins and small bars, exchange-traded funds, and physical gold (used mostly for commerce and finance). The catch is that no matter which financial market you’re considering, they all require physical gold. Still, the production and transportation of physical gold is the exact process that COVID-19 has disrupted.
Hector Flores Shares an Outlook for Gold
While it may have been a rough few months for the gold industry, there is hope for the future. Even amidst the darkest months of the COVID-19 pandemic, the gold market has continued to function. When the pandemic began, the number of commercial flights dropped exponentially. For those that were still operating, gold was not a priority. However, luckily, despite severe interruptions to the delivery and transportation of gold, gold production has continued throughout, even if in a reduced capacity. Because there are gold mines in countries worldwide, the production of gold was never completely stopped, which means the world could avoid a total halt in the gold supply chain.
As the pandemic rages on, those involved in the gold supply chain have learned how to work safely and efficiently within the new pandemic context, shares Hector Sosa Flores. Thus, the production of gold has been ramped up, with many mines and refineries reopened. And given that investor demand for gold has exploded and is likely to continue to do so for as long as the pandemic goes on, there is an incentive for all parties to keep the supply chain intact and operating at its highest possible level.
