If you’ve recently flown from Europe to New York, there’s a chance you were unknowingly part of a high-stakes, high-altitude gold trade orchestrated by gold dealers at JPMorgan Chase (JPM 0.10% ▲).
President Trump’s threatened tariffs on Europe have set the precious metals market into disarray, with gold prices soaring to record highs. As a result, a significant price gap has emerged between the value of gold in New York and London.
At this moment, gold is worth notably more in Manhattan than in the U.K. capital, sparking the largest transatlantic movement of physical gold bars in years. Traders at major banks are scrambling to remove gold from vaults beneath London’s medieval streets and from Swiss refineries, quickly ferrying it across the ocean to capitalize on the price difference.
The most economical way to transport this valuable commodity safely? Commercial planes.
Gold futures in New York have risen 11% this year, closing at $2,909 per troy ounce. Some analysts even predict the price could soon hit $3,000 per troy ounce for the first time. Many investors view gold as a safe-haven asset during times of heightened risk. In contrast, in London, prices per troy ounce have been about $20 lower since early December, a deep discount traders believe reflects the looming risk of tariffs at the U.S. border.
A small number of banks with access to vast gold supplies, such as JPMorgan (JPM 0.10% ▲) and HSBC Holdings (HSBC 1.15% ▲), are in the prime position to benefit from this price discrepancy, according to market participants and analysts.
Others, like Citigroup (C 3.06% ▲), are keen to join JPMorgan and HSBC in the exclusive club of banks with the ability to store clients’ gold bars in London vaults, according to people familiar with the discussions.
However, some banks and hedge funds may be in for a tough time if they can’t quickly acquire gold to help cover money-losing trades in New York. In fact, the interest rate to borrow gold has surged due to the strain on the market.
One major reason behind this: the rush to ship gold to New York has caused a weeks-long queue to withdraw gold from the Bank of England’s deep vaults. Officials monitoring London’s bullion market have received anxious calls from bankers hoping to speed up the process. According to people familiar with the matter, the Bank of England has responded by telling them to wait their turn.
This gold rush highlights how President Trump’s efforts to reshape global trade are having ripple effects on international markets. In one recent comment, Trump referred to Europe’s trade stance with the U.S. as “an atrocity” and promised harsh tariffs on the region. While it’s unclear if these tariffs will directly impact gold, the price gap widened after Trump introduced broad aluminum and steel tariffs.
As Wade Brennan, CEO of Kilo Capital, explained, manufacturers using gold are losing money and struggling to price their products as a result. “The situation is very profitable in the short term for some players, the clearing banks and refiners in particular,” Brennan said.
The movement of gold to New York began soon after Trump’s election victory. Under normal circumstances, traders close out derivatives contracts setting the future price of gold before physical bars change hands.
Investors, banks, miners, and jewelers trade gold contracts on New York’s Comex exchange, one of the world’s main gold markets. The U.K., on the other hand, has long been the primary location for buying physical gold. Usually, the prices in these two markets move in sync. But when they diverge, traders know they can move gold wherever the price is higher.
Banks typically hold significant positions in gold in London, lending the metal out to earn returns and hedging the risk of falling prices by selling futures contracts in New York. JPMorgan and HSBC, which clear gold transactions and store gold bars for other banks in London, are among the largest players in this transatlantic market.
The trade is typically low-risk, as long as prices in both locations are aligned. But when the price of gold on the Comex surged above London prices late last year, partly due to concerns over tariffs, futures contracts that banks had sold in New York quickly moved underwater.
As a result, the urgency to act increased. Even large, paper-based losses require banks to set aside additional capital in their commodities desks, limiting their ability to operate profitably for years to come.
To close these positions, banks could buy futures contracts in New York. However, doing so would lock in their losses. Another option, as Robert Gottlieb, a retired gold-trading executive, suggested, was to fly the physical gold they held in London to New York and deliver it to the futures contract owners instead.
Once the banks covered their open positions, they had an opportunity to profit by locking in higher prices in New York and shipping even more gold. JPMorgan, for example, said it planned to deliver $4 billion worth of gold in January, according to Comex filings. The exact breakdown of the shipment’s purpose, whether to cut losses or to make a profit, remains unclear.
Even for the likes of JPMorgan, moving gold to New York isn’t straightforward.
Gold is transported by security firms in high-strength vans to the airport in London. Since Comex contracts require bars to be a specific size, traders must often send gold to Swiss refineries to recast it before it can be flown to the U.S. In some cases, they bypass the first European step by exchanging gold directly in London for the right-sized bars, or by flying gold in from Australia.
The last major gold market disruption occurred in 2020 when the coronavirus pandemic shut down Swiss refineries and grounded flights, causing supply and logistics issues.
The price gap between New York and London has created headaches for those holding large transatlantic positions but with limited access to gold bars. Some traders scrambled to borrow back gold they had lent out in London to cover short futures positions in New York. They encountered significant bottlenecks at the Bank of England, which holds a vast gold supply, mostly owned by overseas central banks.
The Bank of England, however, has struggled to meet the soaring demand, as Dave Ramsden, the deputy governor, acknowledged last week: “There are real logistical constraints and security constraints,” he said. “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.”
Despite these logistical challenges, Gottlieb, the retired gold trader, argued that the system is failing. He pointed to the traders eagerly seeking gold, while central banks holding gold at the Bank of England would love to lend out their bars at sky-high interest rates—but can’t.
Source: The Wall Street Journal
