Did US tariff threats affect the gold market?

Gold bullion flows West amidst tariff uncertainty

In late 2024 COMEX inventories started to rise as concerns grew that tariffs could impact gold imports (1). 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 (2).

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. This trend has continued into early 2025 and, as of date, COMEX registered and eligible inventories have increased by nearly 300t (9mn oz) and more than 500t (17mn oz), respectively (Chart 1).

By way of context, 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.

Alongside the increase in inventories, the price of COMEX gold futures contracts – and their spread to spot gold traded in London – also 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 US$40/oz to US$50/oz (140-180 bps), significantly above the US$13/oz (60 bps) average from the past two years (3).

Now…this is not new. COMEX inventories – and the differential between futures and spot prices – have risen before, most notably at the onset of 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? We 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.

London inventories have fallen…but not as much as some think

As COMEX inventories rose during COVID, London inventories fell. And both eventually normalised. At present, total LBMA reported inventories stand at approx. 8,500t (Chart 2), out of which approx. 5,200t 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 (4).

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% during January, reflecting ‘tightness’ in the London gold market (Chart 3).

Gold’s diverse sources of supply can promote normalisation

Trade data from the Census Bureau suggests 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 (5). 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.

Of course, gold flowing into the US from around the world may limit the amount of gold going into other markets, including London, but we believe that the impact should be temporary. This is especially true as 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 buildup of COMEX inventories has slowed; the spread differential between gold futures and spot prices is falling (6), and the bid-ask spread for gold ETFs – many of which vault their gold in London – remain well behaved (7). In addition, the lease rates also seems to be cooling down, with data suggesting it is now closer to 1% and well below January’s record high (Chart 3).

While part of gold’s strong price performance could be attributed to momentum, our analysis suggests that it has been supported by flight-to-quality flows amid increased financial market volatility driven by geoeconomic and geopolitical concerns (8).

Summary

Gold was not a direct target of tariff policies, but the market's reaction to trade uncertainty has triggered a significant shift in gold behavior and has had an impact on gold prices. The flow of gold from London to the United States, the widening of the COMEX price spread, and investor concerns gold withdrawal are all phenomena that are largely the result of risk management decisions rather than actual supply issues.

At present, COMEX inventories appear to be sufficient, and backlog of gold withdrawals from the Bank of England is gradually being resolved, which should ease in the coming weeks. However, it also reminds us that even indirect concerns about policies can trigger a chain reaction in global financial markets.

In the future, there may still be brief fluctuations in the gold market. But there are signs that, over, the depth and liquidity of the gold market are sufficient to withstand most shocks.