Banks are rapidly moving gold from vaults in London to New York, prompted by concerns that US President Donald Trump’s potential trade war could disrupt the global economy. As a significant price disparity develops between gold in New York and London, several banks have acted swiftly.
Reports indicate that US gold inventories have doubled since Trump’s victory in the 2016 elections. The Republican president’s threats of tariffs on European imports have created turbulence in the gold market, resulting in the largest trans-Atlantic movement of physical gold bars in years.
Let’s explore this further.
US banks pull out gold from London
Concerns over President Trump imposing tariffs on Europe have led to a surge in gold prices in New York, while prices in London have dropped since late last year.
After the US President levied 25% import taxes on steel and aluminum, traders are increasingly worried that gold could be his next target. As a result, gold is being flown from London to New York, where it is currently valued higher.
Major banks such as JPMorgan from the US and HSBC Holdings from the UK are among those moving gold from London’s vaults to Manhattan, according to The Wall Street Journal (WSJ).
According to The Independent, a vast network of tunnels beneath London’s Threadneedle Street houses the world’s second-largest gold depository. Following Trump’s tariff threats, US banks are rushing to transport gold stored in the Bank of England’s heavily guarded vaults.
While the gold markets in the UK and the US are typically in sync, when there is a significant price difference, traders can move gold to where it fetches a higher value.
As reported by WSJ, gold futures in New York have risen by 11% this year, reaching $2,909 (around Rs 2.5 lakh) per troy ounce last week. Some analysts predict that the price could hit a record high of $3,000 (around Rs 2.6 lakh) per troy ounce.
Since early December, gold prices in London have been about $20 (Rs 1,739) lower per troy ounce.
Bank of England Deputy Governor Dave Ramsden told The Telegraph that the bank has been flooded with requests to move bullion out of its vaults after New York’s futures prices exceeded London’s cash prices.
The transfer to US Banks
Shifting physical gold from London to New York is no simple task. US banks are utilizing the cargo holds of commercial planes to transport the precious metal safely across the Atlantic.
The process, which is cost-effective, involves security firms transporting gold bars in high-strength vans to the airport in London, as reported by The Wall Street Journal (WSJ).
Before reaching New York, the gold bars are sent to Swiss refineries for recasting, as New York’s Comex contracts require bars of a different size. These newly recast bars are then flown to the US on commercial flights.
However, the Bank of England is struggling to meet the increasing demand for gold. Deputy Governor Ramsden explained earlier this month, “There are real logistical constraints and security constraints. Getting into the bank for me this morning was a bit trickier because there was a lorry in the bullion yard…It takes time and the stuff is also quite heavy.”
Reason for moving Gold
Gold is regarded as a safe haven during times of uncertainty, and US banks are reportedly moving the precious metal from London to New York to cover losses on short futures positions.
Banks like JPMorgan and HSBC hold large amounts of gold in London, which they lend out to borrowers for a return. To protect themselves from price drops, they sell gold futures in New York.
As The Wall Street Journal (WSJ) noted, this trade appears almost risk-free when gold prices in London and New York are similar. However, after Trump’s election, when gold prices in New York’s Comex exceeded those in London, banks that had sold futures contracts in New York began incurring losses.
To turn these losses into profits, these banks have opted to move physical gold bars from London to New York, rather than buying back the futures contracts at a loss.
By taking advantage of the price disparity between the two cities, banks are transferring significant amounts of gold.
The Independent reports that nearly 8,000 gold bars, or about two percent of the Bank of England’s total reserves, have been removed over the past few months.
Comex filings show that JPMorganChase alone is expected to deliver $4 billion (approximately Rs 34,000 crore) of gold this month.
