Something Extraordinary Is Taking Place In The Gold Vaults Below Manhattan

There was an interesting article overnight in the otherwise conservative and establishmentarian Financial Times, perhaps best known over the past decade for religiously keeping its readers out of the best performing asset class of all time (bitcoin in particular, and crypto in general which have been relentlessly and constantly bashed with fanatical obsession by all of its now former FT Alphaville writers whose track record of picking trades leaves Jim Cramer in the dust).

While normally the FT does not bother with reports about gold, and certainly not global flows of gold, this time it made an exception, observing that in recent months there has been a unprecedented "shortage of bullion in London" (which as a reminder for new readers is ground central of the LBMA which stands for London Bullion Market Association) as a result of which "the wait to withdraw bullion stored in the Bank of England’s vaults has risen from a few days to between four and eight weeks, according to people familiar with the process, as the central bank struggles to keep up with demand."

“People can’t get their hands on gold because so much has been shipped to New York, and the rest is stuck in the queue,” said one industry executive. “Liquidity in the London market has been diminished.”

This in turn has resulted in a historic flight - literally - of physical gold out of London and into the US, where it has been parked in various LBMA vaults (whose weekly inventory updates can be found here courtesy of the CME).

The FT's thesis is that LBMA physical gold has fled the UK market for two reasons:

fears of Trump admin tariffs, and

translatlantic price arbitrage (i.e., "the shipments are also the result of higher prices on the futures exchange in New York than in the cash market in London. The unusual arbitrage opportunity has incentivised traders to send the metal across the Atlantic").

Let's take these on one by one. First, the FT itself admits that it's actually not Trump's tariffs that are the cause for this unprecedented flow and the Nikkei-owned publication is merely guessing, to wit:

Traders say the shipments are intended to avoid tariffs on bullion that some fear could be introduced by US President Donald Trump….. but… Trump has yet to spell out his trade policy and has not specifically mentioned a duty on bullion, although he has threatened to impose wide-ranging tariffs on US imports.

The whole point of Trump's tariffs is to encourage domestic production and to reposition global trade flows so the US benefits. None of that is applicable for gold, since the US is at best the 5th biggest producer in the world behind China, Russia, Australia and Canada, and no amount of sanctions or tariffs can change how much gold any given mine can produce. Trump knows this; more importantly traders know this, and admit that the "fear of tariffs" has nothing to do with the unprecedented shortage of gold in London, and the sudden flood of physical gold in New York. In fact, the FT itself hints at this:

“The movement of gold needed to make its way into New York, that is basically what has been driving ‘stockpiling’,” said Joe Cavatoni, market strategist at the World Gold Council. “That is leading a lot of people to say, ‘we want to get ahead of it’, and that is driving the futures market into a premium.”

However, Cavatoni said he was cautiously optimistic that the coming tariffs would most likely not apply to bullion. “We are not getting a sense from the rhetoric from the administration that it intends to go after the monetary metals,” he said…..

So if anyone, clearly not the FT, really wants to find where all that physical London gold has gone, look to Switzerland, but most of all look to China which has been gobbling up every last ounce of physical it can find for reasons which are still not entirely known, even if they are becoming clearer with every passing day… and if they aren't, look at this chart we first posted last April and they will.

But certainly don't blame the US - which received far less, or about 200-400 tonnes of London gold per year - for syphoning away the LBMA physical.

That however is not to say that physical gold isn't being store in the US. On the contrary, one look at the activity in the various Comex gold vaults underneath New York, and one will find something unprecedented, or rather something seen just once: in the aftermath of the covid collapse which nearly shut down the world and sparked a historic, $30 trillion fiscal and monetary stimulus.

Read more:

https://www.zerohedge.com/precious-metals/something-extraordinary-taking-place-gold-vaults-below-manhattan