Tariffs Are Reshaping the Gold Market
The Latest Updates on Gold and its Movements
News outlets are full of articles reporting on gold and silver flowing into the United States from countries that have yet been subject to U.S. tariffs on precious metals sourced there.
Traders, worried that the potential expansion of tariff implementation to more countries would make future gold imports costlier, are pre-emptively importing gold into the United States.
Most of these gold flows indeed originate from London, which stores over 8,500 tons of gold and has traditionally been the primary physical source to cover U.S. paper gold delivery obligations for exchanges like COMEX.
The gold moving out of London still represents only a tiny percentage of London’s gold holdings, accounting for about 2% of its total gold stock. Entities claiming that the Bank of England is defaulting are either ignorant or deliberately creating sensationalist headlines to gain attention or viewership.
The real issue is primarily logistical, related to delivery standards, as shipments from London to the U.S. often require the bars to be remelted first.
The London LBMA good delivery standard uses 400 oz gold bars, and most of the 8,500 tons in London are in this format. However, U.S. futures exchanges like COMEX primarily trade price exposures (paper gold) rather than keeping large physical inventories. When COMEX does hold physical gold, it must be in either 100 troy oz or 1 kg bars. Since 100 oz gold bars are not a common international format nor produced in significant quantities, COMEX and its short sellers effectively need 1 kg gold bars to fulfill physical delivery obligations. However, London primarily holds 400 oz bars.
As U.S. banks try to acquire as much "COMEX-deliverable" gold as possible ahead of potential additional tariffs or sanctions, they are often offered 400 oz bars from London despite their need for 1 kg bars to cover expected delivery obligations.
These 400 oz bars must first be recast into 1 kg bars by approved refiners before they are fit for COMEX deliveries. Consequently, the real bottleneck appears to be refining capacity rather than gold availability. This has caused large amounts of gold to flow from London to Switzerland (and even Singapore, where a Swiss refiner operates) for re-casting before being flown into the United States.
This is further supported by the fact that key refiners have increased their premiums when selling 1 kg gold bars yet are not necessarily offering better prices when acquiring gold. Refiners seem to have ample gold but are constrained by recasting capacity. As a result, recasting premiums have surged, explaining why gold at the Bank of England (400 oz bars) has traded below spot while 1 kg bars in the U.S. briefly reached premiums of up to $40 over spot.
Thus, these bottlenecks are primarily due to refining limitations, and the Bank of England is not defaulting.
However, it should be noted that the recent increase in U.S. tariffs (from 10% to 20%) on gold and silver refined in certain locations, such as Hong Kong, has reduced the number of refiners able to service the U.S. market.
For example, gold refined by Swiss refiners in Hong Kong bears a refinery hallmark that makes it subject to U.S. tariffs, effectively removing such Swiss-refined gold from U.S. market access.
If tariffs are extended to Canada and Mexico—Mexico being the world’s largest silver producer—Canadian and Mexican gold and silver may also be excluded from the U.S. market.
As the number of refiners supplying the U.S. shrinks and the tariff noose tightens, the premium for physical gold in the U.S. is likely to remain elevated, while physical gold and silver stored offshore will become relatively cheaper, as it is not subject to U.S. tariffs.
Unfortunately, Americans buying gold and silver domestically will face potentially higher premiums due to the tariffs’ self-imposed restricted supply. By comparison, buying and storing precious metals offshore, especially in a safe jurisdiction like Singapore, will become an increasingly attractive option financially, with the crucial benefit of jurisdictional diversification for wealth protection.