Gold’s extreme price dislocations are fading as tightness in the physical market eases, indicating a rush to ship bullion to America may have run its course.
US prices surged above international benchmarks in recent months amid fears gold could be included in President Donald Trump’s sweeping tariff measures. The price differential between New York’s Comex and the London spot market created a lucrative arbitrage opportunity for traders, fueling a worldwide dash to send the metal to America to capture the premium.
The gap between Comex futures and spot gold has now shrunk to around $10 an ounce from highs of about $60 in January. The normal difference is usually only a couple of dollars, and the contraction indicates the trade incentive is coming to an end after the surge in inflows to the US, which is usually a net exporter of the metal. The cost of borrowing gold in London has also fallen, in a further sign the trade is unwinding.
“That trade is getting exhausted,” said Bart Melek, global head of commodity strategy at TD Securities. “There are now a lot of kilo bars in the US, which is not a natural market” for them, he said, adding that Asia more typically takes such bars as it boasts a robust retail market.
Gold stockpiles at Comex depositories totaled 39.5 million troy ounces as of Tuesday, the highest in four years. That’s nearly enough physical metal to cover the bullion dealers, fund managers and other participants currently holding short positions on the exchange, according to the latest commitments of traders report. The last time Comex warehouses experienced such a spike was during the pandemic, when dealers overcame supply-chain disruptions that had caused a similar blowout in spreads.
Lease rates for borrowing gold in London are also coming down. The implied interest rate, which is derived from subtracting gold’s forward swap rate from the interbank cost of money, hit its highest point in decades in January as banks sought to secure bullion to deliver into Comex short positions. It’s now at a more normal level, close to zero.
Because of the urgency to move the metal into the US to beat any potential Trump tariffs, traders tapped commercial vaults as well as Bank of England stores, resulting in logistics bottlenecks in London, the world’s largest physical trading hub for bullion.
The rare discount for gold in the BOE vault to the wider London market has now narrowed to less than $5 an ounce, according to people familiar with the matter.
There’s still no clarity on whether gold will be included in Trump’s tariff measures, so it’s possible the price differential between New York and London could widen again. And while the uncertainty remains, the elevated level of inventory on Comex may provide comfort to dealers who — in more normal times — would prefer to hold stock in cheaper London vaults.
But eventually, the high cost of storage in New York could also encourage some traders to move their gold back to London or elsewhere once the financial incentive to keep it in America has waned, according to John Chen, regional head of commodities sales for Standard Chartered Plc in Singapore.
“London is probably the cheapest place to store,” Chen said. “Depending on where client demand is — could be in Hong Kong or it could be India — we move the material where there’s demand for it.”
Related topics：
- What is the Value of 18K Gold?
- Why Does Gold Price Increase During War?
- What is the Best Price Being Paid for Gold Sovereigns?
