In recent weeks, concerning reports have emerged relating to the physical delivery of gold. If sources are to be believed, there have been considerable shipping delays between London and New York because of the huge volumes being transported. Standard delivery times are usually no more than a couple of days, but this has now increased to over a month according to those familiar with such matters. So what is going on? London has long been the world’s primary centre for the trading of precious metals. The London Bullion Market Association (LBMA) accounts for roughly two thirds of worldwide physical gold trading. As of January 2025, 8,500 tonnes of gold and 23,500 tonnes of silver were stored within the LBMA’s cavernous vaults. While the Bank of England does indeed use the same vaults for its own holdings, the vast majority of the precious metals within are the property of various international banks, bullion dealers and refiners. On the other side of the Atlantic, New York is home to COMEX, or The Commodity Exchange. COMEX is essentially the metals branch of the Chicago Mercantile Exchange (CME), but unlike its British counterpart deals exclusively in futures contracts. This is not to say that those futures contracts cannot be physically delivered, but this very rarely occurs. To the obvious question then: why is so much gold being sent from London to New York? The first element of an answer is of course the looming threat of tariffs. Much of the gold stored under the streets of London will belong to American entities. If President Trump is serious about enacting wide-ranging tariffs on goods coming into the United States, why should gold be any exception? If tariffs are indeed on the cards, the advantage of pre-emptively shipping goods is obvious. This line of reasoning has been cited by financial analysts and even by the LBMA itself, but it is worth exploring in a little more depth. In particular, why is JPMorgan importing $4 billion in gold bullion? Whether tariffs will end up affecting gold or not is almost irrelevant. If markets think there is a possibility, it will be priced in. Moreover, the larger players involved in this game, such as international banks, have an obligation to cover all possible risks. Typically, futures contracts will price a commodity higher than the actual spot value, a situation known as contango. In the case of gold, the COMEX price is higher than the figures being quoted for actual bullion. This leads to a small but workable arbitrage opportunity, which generates huge revenues for those in a position to take advantage of it. All well and good, but a somewhat delicate balancing act – one that could be quickly upended by a sudden tariff for example. Both paper and physical gold prices would spike. This would be a disaster for the likes of JPMorgan, who would lose out massively if it had to cover futures contracts at a higher price. By importing huge amounts of gold before the contracts expire, banks can bypass this problem and maintain an arbitrage advantage by settling physically if they have to. Having gold bullion on hand is essentially an insurance policy. International banks will have entire teams dedicated to staying on top of situations like these. So that’s it. Entire planes full of gold are being flown over the Atlantic because of some fleeting agreements that typically would not leave the confines of a database. The logistics of doing so are certainly nothing to be sniffed at. One overlooked aspect of the operation is that the gold bars stored in London do not meet the required specification of the COMEX deliverables. London favours the larger, 12.5 kg bars whereas New York demands smaller, 100-ounce ingots. As a result, London gold first has to be transported to refineries in Switzerland to be recast to the dimensions required by COMEX. Once ready, the gold bars are transported in armoured vehicles by drivers who are not typically informed as to the contents of their trucks. After arriving at the airport, the precious cargo is loaded into the holds of commercial jets, unbeknownst to the passengers above, before being flown across the ocean. Only so much gold can be flown at a time because of insurance purposes. An airplane full of gold would be prohibitively expensive to insure. An impressive undertaking no doubt, but one that can still be covered by the London - New York spread. Sending gold around the world by plane is nothing new, as long as the arbitrage trumps the transport costs it is a perfectly viable trade. The sheer volumes currently crossing the Atlantic are unprecedented however, hence the delays experienced by those seeking delivery out of the London vaults. The novelty has even extended to the silver trade. The premiums in silver futures are now such that is worth sending silver bullion by air – something that would normally only be done by sea freight. Interesting times call for interesting measures.
Poor economic data triggered significant selloffs in US stocks last Friday, leading to steep losses in the major indices. The Dow and S&P 500 both lost around 1.7% while the tech-heavy Nasdaq fell 2.2%. Not the greatest of days. Not the greatest of weeks. A glance at the futures markets this morning does paint a more optimistic picture, with the big three currently up around 0.4%. The Dollar remained relatively isolated from all the drama, with the DXY making a slight gain on the day. Gold was similarly unmoved, losing no more than a handful of Dollars on Friday. Crude oil prices on the other hand fell over 3% late last week as tensions in the Middle East continued to dissipate. The latest S&P global PMI report stoked fears that US business activity is stalling. While the manufacturing sector remained firmly in expansion and even exceeded expectations, the US service sector on the other hand unexpectedly fell into contraction with a 49.7 print – the lowest in over two years. Fundamentals may have to take a step back for the time being. The German election has just concluded and as usual the event provided no clear winner. The leading parties will now have to wrangle out a coalition for the years ahead. The Euro rose 0.5% against the Dollar this morning and is currently hovering around $1.05. The economic calendar is utterly devoid of content early this week, so expect politics to be the main driver behind any market movements. The drought won’t really end until Friday, with the release of the PCE price index. The core index, which excludes food and energy costs, has long been the Fed’s main weather vane to gauge US inflation. US GDP may also provide a surprise on Thursday, but until then, better to keep an eye on the news.
Gold notched its second record high of the week yesterday, touching $2,955 an ounce before making a small pullback. Safe-haven inflows have resumed once again in light of trade tariff posturing and the threat of a wider global trade war. For now, such talk remains no more than a threat, to the frustration of many Dollar bulls. As Donald Trump begins his second month in office, many expected such tariffs to be set in stone at this point. The delays and uncertainty are leading to many traders losing patience with the long Dollar trade. The Greenback hit another yearly low yesterday, dragging the DXY down 0.77% to the low-106 range. The Japanese Yen in particular took advantage of a weaker Dollar, which fell below 150 Yen on Thursday. Murmurs behind the scenes suggest the Bank of Japan could increase rates on the Yen during the summer. Recent data out of Japan certainly backs up such a possibility. On Monday, Japanese GDP crushed expectations, coming in far higher than anticipated. Data published this morning also suggests an uptick in inflation within the island nation, further bolstering the argument for a rate hike. A reminder that Japan is in a completely different situation to most countries in this regard. For decades, the BoJ has maintained rates in and around 0% in a bid to stimulate growth, with mixed results. Current rates are the highest they have been since 2008 and unlike much of the rest of the world, are looking to go higher as opposed to lower. The latest FOMC minutes did nothing to shift sentiments, as board members once again reiterated the need to see progress on inflation before committing to a rate cut. FedWatch did not budge an inch following the release, steadfastly clinging to a 95%+ chance of no change at the next meeting. Yawn. The week is not over yet. The European session opens with UK retail sales and a slew of European manufacturing and services figures. Later on, Canadian retail sales and US PMIs wrap up the day’s events. One last push before the weekend.
US stocks had little to work with yesterday following market closures on Monday due to Presidents’ Day. That did not stop the S&P 500 from edging to a new all-time high of 6,129 in the last few minutes of trading. The Dow and Nasdaq just about managed to close higher after spending much of the session in the red. For once, record highs in stock indices were not only limited to the US. Last Thursday the FTSE 100 also hit a fresh all-time high, a feat mirrored by the German DAX just yesterday. In Hong Kong, the Hang Seng Index climbed 1.6% yesterday before the daily close to come within 100 points of beating its own all-time high. The move came off the back of positive sentiment in China’s technology sector, with Tencent and Alibaba in particular displaying a decent amount of strength. Not wanting to be left out of the action, gold also put in a solid performance yesterday, gaining the better part of $37 to reach $2,935 an ounce by the close. This morning the precious metal made a short-lived attempt to push higher still but has since retreated at the time of writing. In increasingly stark contrast, the display from the crypto markets has been completely lacklustre as Bitcoin continued to meander around $95k this week. In the absence of much else going on, traders are patiently awaiting the latest FOMC minutes, set to be published much later in the day. No one is expecting a rate cut on the next meeting, set for the 19th of March, but market participants will still want to know what the Fed is thinking.
Happy Valentine’s Day. US inflation data tugged market sentiment one way then the other over the past couple of sessions. Wednesday’s CPI print caused some degree of panic after both the headline and core rates came in higher than expected, pushing the Dow and S&P 500 to minor losses. The data release made for a volatile day in currencies but ultimately the Dollar closed flat. Before markets had a chance to fully process the implications of higher inflation, the following day’s PPI numbers considerably softened the blow. Although still higher than expected, the figures suggest that the rate of appreciation has slowed down from December. A small sign, but markets were all too happy to seize it. The first whiff of hope that the Fed may have grounds to cut interest rates in the not-too-distant future. Wishful thinking or not, the Dollar plummeted to the downside, dragging the DXY down 0.84% on the day. Gold took the other side of the equation, gaining an equal percentage to reach $2,928 an ounce. US stocks also took the news well, with all three major indices making decent gains, the S&P 500 in particular closing just shy of a record high. There is still a long way to go before the next Fed meeting on the 19th of March, and a lot of fresh economic data along the way to orient their decision. Crypto markets are eagerly waiting a new era of lower rates, but for the time being are somewhat penned in. Bitcoin has still not convincingly broken and held above $100k and a lot of the major cryptos have displayed even weaker price profiles since the start of the year. The bulk of the week’s drama is likely behind us at this point, but US retail sales could step in later today to provide one last bump in the road before markets settle down for the weekend. Buy flowers.
Bulls managed to push gold all the way up to $2,942 an ounce yesterday before ceding ground ahead of Jerome Powell’s first round of comments on Capitol Hill. The Federal Reserve Chair faced the Senate Banking Committee on Tuesday, taking the opportunity to reiterate that there was no rush to lower interest rates on the Dollar. Powell stated that the US economy is strong overall with a solid labour market, but inflation remains above the Fed’s 2% target. Many investors would love to see some extra liquidity pumped into the system, but given the current strength of the US economy the Fed simply has no reason do so. Powell will no doubt repeat much of the same in front of the House Financial Services Committee later today. A reminder that the next interest rate decision is still five weeks away and markets are currently pricing in no change with a 96% probability. The economic calendar has very little to offer until much later in the day, at which point US inflation data will shake things up a little. Attentions may also shift to oil markets this evening as we get the latest on crude inventories. Brent crude and WTI both saw decent buying pressure early in the week based on supply fears but the latest reports suggest US stockpiles have in fact risen. American Petroleum is now reporting an increase of over nine million barrels last week. Brent Crude now hovering in the mid-$76 range and WTI just under $73 a barrel.
