The global gold market is undergoing a major shake-up, and it’s all happening beneath the streets of London.
Traders are pulling massive amounts of gold out of the Bank of England (BoE) and rushing to move it to the US, creating long withdrawal delays and unexpected price distortions. ⁽¹⁾ But why is this happening, and what does it mean for gold traders?
What’s Happening in the Gold Markets?
Gold has long been considered a safe-haven asset, and in times of uncertainty, investors turn to it for stability. But very recently, traders have been frantically relocating their gold reserves from BoE vaults to New York’s COMEX exchange—and the main reason boils down to one word: tariffs.
While the US hasn’t officially imposed tariffs on gold, traders worry it could be next in line as trade tensions escalate under the Trump administration. Instead of waiting for an official policy change, many are moving their gold now to avoid the risk of hefty potential import duties just in case. ⁽²⁾
Since the US election in November, traders have shifted around 400 metric tonnes of gold from London to New York—one of the largest gold migrations in modern history. ⁽³⁾ But while tariff concerns have played a major role, they’re not the only factor at play.
Source: Financial Times
An Arbitrage Trade
While traders are hedging against the risk of potential US gold tariffs, another background story is arbitrage. The US gold futures market has been consistently trading at a premium compared to the London over-the-counter (OTC) spot market, creating a lucrative incentive for traders to move their holdings across the Atlantic. ⁽⁴⁾
At one point, the spread between COMEX gold futures and London prices widened to as much as $60 per ounce, a rare but highly attractive arbitrage opportunity. The difference has since fallen back to around $10 as traders moved gold into the US. ⁽⁵⁾
By withdrawing gold from London vaults and shipping it to New York, traders have used this to capitalize on the price differential, increasing demand for physical bullion and further tightening liquidity in the London market.
The Shift in Futures Market Behavior
Another major driver behind the gold outflows is a shift in futures market dynamics. The US is home to the world’s largest gold futures market, where most contracts are typically rolled over or cash-settled without requiring physical delivery.
But in some instances, traders must deliver physical gold to fulfill some of their futures contracts. ⁽⁶⁾
This has put enormous pressure on London’s gold inventories. The unexpected surge in physical demand has drained liquidity in the UK and contributed to bullion shortages, further accelerating the shift from UK vaults to US ones.
But moving gold across borders is no simple feat, and the scale of recent outflows has overwhelmed the system. What once took a matter of days at the BoE is currently taking up to eight weeks, stretching logistics networks.
The situation even prompted Bank of England Governor, Andrew Bailey to publicly address concerns about London’s bullion security. He mentioned that things would be different 100 years ago when the UK was on the gold standard, adding that “London remains the major gold market in the world.”
What the Situation Means for the Gold Market
The ongoing shift in gold flows has far-reaching implications:
- Strained Supply Chains: The sheer volume of bullion moving from London to New York has caused significant delivery delays, impacting trading efficiency.
- Heightened Market Volatility: The interplay between physical shortages, futures market dynamics, and geopolitical uncertainty is driving increased price swings.
- London Liquidity Squeeze: With more gold being withdrawn, borrowing (lease) rates in London have spiked to multi-year highs, making it more expensive to finance gold positions.
- Shift in Market Behavior: What we’re seeing isn’t a shortage, but rather a shift in how gold is being stored and traded.
