Market reactions to trade uncertainty have driven a significant shift in trading behaviour and impacted the gold price, the World Gold Council (WGC) has said. Gold has not been a direct target of tariffs, it said.
“The movement of gold from London to the US, rising COMEX premiums and concerns over availability were largely the result of risk management decisions rather than true supply issues,” said WGC global head of research Juan Carlos Artigas and European senior market strategist John Reade.
Disruptions should ease
With COMEX inventories appearing to be well-stocked and the backlog of withdrawals from the BoE continuing to be cleared, these disruptions should ease over the coming weeks. However, this period serves as a stark reminder that even indirect trade policy concerns can send ripples through global financial markets, they said.
“This may not be the last time we see temporary distortions in the gold market. The signs , however, are that the depth and liquidity of the gold market is able to absorb —over time —most of these shocks,” said Artigas and Reade.
WGC said trade data from the Census Bureau suggest that a good portion of gold flowing into the US comes from Switzerland. In turn, some of this gold could have originated in the UK as it needs to be refined from good delivery (~400 oz) bars into 1 kg bars —the weight accepted for delivery into COMEX futures.
Other sources of gold include Canada, Latin America, Australia and, to a lesser degree, Hong Kong. And then there’s gold from domestic mine production —the US being the fifth largest producer globally —which can be refined locally.
Temporary impact
Gold flowing into the US from around the world may limit the amount of gold going into other markets, including London. The impact should be temporary, said Artigas and Reade.
Gold has multiple sources of supply —mine production and recycling —spread around the world, reducing the reliance on imported gold to meet local demand in the medium term.
A few signs of normality are starting to emerge: the build up of COMEX inventories has slowed, the spread differential between gold futures and spot prices is falling, and the bid-ask spread for gold ETFs —many of which vault their gold in London — remain well behaved.
“In addition, the lease rates also seem to be cooling down, with data suggesting it is now closer to 1 per cent and well below January’s record high,” the WGC experts said.
Flight-to-quality flows
While part of gold’s strong price performance could be attributed to momentum, WGC said its analysis suggests that it has been supported by flight-to-quality flows amid increased financial market volatility driven by geoeconomic and geopolitical concerns.
In late 2024, COMEX inventories started to rise as concerns grew that tariffs could impact gold imports. This surge of gold imports into the US caught many gold market observers by surprise, as the country is (more or less) self-sufficient in its gold needs, being both a significant producer and a consumer.
“While gold itself hasn’t been directly targeted, speculation and shifting risk management strategies amid concerns of broad-based tariffs have still had a noticeable impact on prices and trading patterns, said Artigas and Reade.
This trend has continued into early 2025 and, as of date, COMEX-registered and eligible inventories have increased by nearly 300 tonnes (9 million ounces) and over 500 tonnes (17 million ounces), respectively.
Cheaper location
Short-term speculators and some investors often hold large net-long gold futures positions on the COMEX futures market, while banks and other financial institutions short these futures contracts as counterparties.
But these financial institutions are generally not short gold; instead, they run long over-the-counter (OTC) positions to hedge their futures shorts. And, because physical gold is more often found in the London OTC market —as a large trading hub and often a cheaper location in which to vault gold — financial institutions typically prefer to hold these hedges in London, knowing that they can quickly(in normal market times) ship gold to the US when there is a need.
“In recent months, many traders have chosen to pre-empt the threat of tariffs by moving gold to the US, thus avoiding the possibility that they may have to pay higher charges,” the WGC experts said.
Besides the increase in inventories, the price of COMEX gold futures contracts and their spread to spot gold traded in Londonalso rose, with traders factoring in potential tariff-related costs.
“For example, the spread between the COMEX active gold futures contract and gold spot reached as much as $40/oz to $50/oz (140-180 basis points), significantly above the $13/oz (60 basis points) average from the past two years,” they said.
Past examples
This is not new. COMEX inventories and the differential between futures and spot prices have risen before, most notably during the COVID pandemic.
“The main question from investors, amidst reports of falling inventories, is: Can gold’s largest OTC trading hub, London, cope with the market disruption?” asked Artigas and Reade.
Investors can look at past examples for guidance and analyse all the currently available data to offer an informed opinion, considering, of course, the heightened level of uncertainty all financial markets are experiencing in the current environment.
As COMEX inventories rose during COVID, London inventories fell. And both eventually normalised. At present, total LBMA reported inventories stand at approximately 8,500 tonnes, out of which approximately 5,200 tonnes are held at the Bank of England (BoE).
“And while there are reports of queues to retrieve gold, it is important to note that BoE operates differently from commercial vaults —longer wait times create a perception of scarcity that is more likely explained by logistics instead,” they said.
Another consequence has been an increase in gold’s lending rate. A calculation based on overnight borrowing rates and gold swap rates, as a proxy, suggests that one-month lease rates reached as high as 5 per cent during January, reflecting ‘tightness’ in the London gold market, the experts said.