HSBC lost USD 200 million on gold, despite rising prices

Can have gold and lose the fact that its prices are rising? You can. This was proved by the British investment bank HSBC, which announced a gigantic loss of USD 200 million, which resulted from the "splitting up" of the prices of this raw material.

HSBC is an investment bank and one of the largest financial holdings in the world. It is located in London, but it also has 9,5. branches in 86 countries. It belongs to the absolute top of the largest listed companies in the world. It is also by far the largest player on the raw materials market.

It turned out, however, that both the experience, knowledge and accumulated capital were too small to win against ... the coronavirus, or rather its effects. One of them was the commotion in the gold futures market in late March. During the week, gold saw a quick correction of 13%, but that was not the worst for the bank. Earlier, there were also discounts, also much bigger, but patience always allowed us to make up for losses - in line with the stock exchange saying that capital flows from active to patient.

Investors exchanged contracts for gold

Gold prices have not fallen because demand has fallen, because it usually increases when the risky asset prices fall. Temporary discount was caused by disruptions in the physical gold supply chain caused by a coronavirus pandemic. And the problems with deliveries translated into prices that varied a lot with dealers. Some of them could not offer clients any bar because they simply did not have it. Others, in turn, raised prices because demand exceeded supply.

The largest player on this market, HSBC, has felt this strongly. Earlier he benefited from this because he offered to exchange contracts for gold on markets served in London and New York. When prices between them began to differ, investors began to use it. They exchanged contracts for gold, of course, where more was paid. The scale was so large that the bank suffered huge losses.

He reported this in a report sent to regulatory authorities. We read in it, among others:

HSBC posted a greater than usual loss due to investors' willingness to exchange futures contracts for physical gold unprecedented in history. The COVID-19 pandemic has disrupted manufacturing processes and supply chains. The losses reported in March were detected after the correction of the transaction valuations. "

This caused further trouble for the bank, whose shares have been sold out for several months.

HSBC Holding Stock Chart, D1 interval. Source: xNUMX XTB xStation

The most expensive gold in 8 years

Meanwhile, the gold exchange rate is behaving as expected. After the correction, we are again seeing significant increases and the precious metal has already reached the highest price since 2012.

On May 15, 2020, the price even reached $ 1750 during the day. According to TD Securities analysts, the growth is not over. They estimate that after a moment's rest, the gold rate will continue to rally upwards and may even break the level of USD 2000 per ounce. Investors are to look for a safe haven in uncertain times. Prices are also expected to rise due to limited production.

Gold chart, interval D1. Source: xNUMX XTB xStation

HSBC: the economy will contract faster

HSBC forecasts that the global economy will contract faster than everyone expects due to the coronavirus pandemic. Last Friday it was announced that - according to HSBC analysts - global GDP for 2020 will drop to -4,8%. Back in April, the same team estimated that the decline in global GDP would amount to -3,3%.

The economies of the richest countries are to suffer the most, as they will shrink by 7,1%. Developing countries will feel much less - on average at -1,5%.