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BMO: Gold-price spread 'transitory short-term dislocation'

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(Kitco News) - The discrepancy that emerged Tuesday between prices for gold futures and over-the-counter metal is a "short-term dislocation rather than anything structural," said BMO Capital Markets.

Meanwhile, CME Group made a change in how it delivers gold to address the issue late Tuesday. Comex futures prices had traded above spot metal by as much as $70 an ounce, whereas the spread is  normally only a couple of dollars, according to news reports.

"We received a number of questions yesterday about the physical tightness in the gold market that caused a significant differential between the Comex gold futures and OTC spot price," BMO said. "This was a knock-on effect from the shutdown of the Ticino refiners in Switzerland, which has limited the ability to produce the appropriate weight of bars for good delivery against near-dated positions on the Comex contract. Given this is more a failure of contract specification than the market itself, we view this (and the resultant gold backwardation) as a transitory short-term dislocation rather than anything structural."

Comex announced late Tuesday that it was launching a new gold-futures contract with expanded delivery options that include 100-troy-ounce, 400-troy-ounce and 1-kilo gold bars.

Otherwise, Comex delivery is 100-once bars. The change allows gold bars of other sizes in London to be used to settle contracts and counter delivery issues as the COVID-19 outbreak makes it harder to ship metal from London to the U.S.

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