London Gold Bar Supply Tightens

Recently, the global surge in gold prices has not only set new records but has also led to an unexpected shortage of gold bars in London, known as the hub for spot gold tradingThe phenomenon has caught the attention of analysts and investors alike, as this sharp increase in demand poses questions about the future landscape of gold trading.

A report by the Financial Times has unveiled that the waiting time to withdraw gold from the Bank of England's vaults has dramatically extended, stretching from a few days to a daunting four to eight weeksThis delay has been attributed to the overwhelming demand and a significant proportion of gold being transported to New York, creating a bottleneck effectAccording to an industry executive, the current liquidity in the London market has considerably weakened, leaving traders struggling to secure gold supplies.

In a notable development, JPMorgan Chase has revealed plans to deliver more than $4 billion worth of gold bars, amounting to 30 million ounces

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This anticipated delivery will mark the second-largest in history for the New York Commodity Exchange, since records began in 1994. This situation reflects an urgent need from market participants who are eager to capitalize on gold's rising prices and secure their investments in a volatile economic climate.

Stirring further interest, data from the same day highlighted that Switzerland's gold shipments to the United States surged to 642 tons in December—an unprecedented jump that has not been seen since March 2022. This shipment was approximately twelve times larger than November'sSuch a spike reveals not just an increase in trading frequency, but a noteworthy shift towards American demand for gold amidst rising global uncertainties.

Analysts believe that the rising demand for physical gold in London is largely driven by two primary factors: concerns related to potential tariffs imposed by the U.S

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government and the pursuit of arbitrage opportunitiesThe apprehension surrounding U.Stariffs on raw materials, including gold, acts as a catalyst, while the disparity in prices between London’s spot market and the futures market in New York incentivizes traders to move gold across the Atlantic.

Moreover, Friday brought yet another milestone as global spot gold prices climbed above $2800 per ounce, reaching historic highs that highlight the precious metal's allure during times of economic distressAs individuals and institutions seek refuge in gold, it is evident that the metal's role as a safe haven continues to grow amidst uncertain market conditions.

In light of these developments, U.Sgold inventories have surged as wellSince November 2024, approximately 393 tons of gold have transitioned into the Comex vaults, leading to a 75% increase in inventory levels, rising to 926 tons—the highest figure since August 2022. Market participants contemplate that the true inflow of gold into the U.S

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might be substantially higher than currently reported figuresIt appears that a significant amount of gold has possibly entered private vaults belonging to banks such as HSBC and JPMorgan Chase, where transactions are less transparent.

Market strategist Joe Cavatoni from the World Gold Council explains, "The necessity of bringing gold into New York is primarily driving the 'hoarding' behavior among tradersThis has prompted many to assert, 'We want to act ahead of time,' which has further inflated the premiums in the futures markets."

A key point driving the flow of gold to the U.Sappears to be the concerns over tariffs and the potential for arbitrage opportunitiesAlthough specific tariffs on gold have not been confirmed, the looming fear among market players is that regulatory changes could lead to new tariffs on imported metalsThe incentives have led to unusual price disparities, with futures on the New York exchange commanding higher prices than those for immediate delivery in London.

For instance, last week, June gold contracts on Comex were priced at a premium of $60 per ounce above London’s rates

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As traders started redirecting gold to New York, this differential narrowed to $10 per ounceSuch movements amplify the importance of London as a nexus for immediate trading while also elevating New York's status as the primary venue for gold futures trading.

Central banks have emerged as significant players on the gold scene, each seeking to bolster their reserves amid economic uncertaintiesNotably, an unnamed central bank has purchased a staggering 43 tons of gold from the London market in recent transactionsIn a research note published on January 19, Goldman Sachs analysts Lina Thomas and Daan Struyven reported a surprising increase in off-exchange gold demand by central banks, resulting in an upward revision of their forecasts for this buying trend going into the year.

Goldman Sachs indicated that its latest estimates showed that in November, central banks and institutions engaged in trading in London acquired around 117 tons of gold—well above their earlier forecasts of 46 tons

The driving force behind this surge? The People's Bank of China features predominantly, acquiring 50 tons in November alone, followed by the aforementioned unnamed central bank that purchased another 43 tons through Swiss channels.

In light of these developments, Goldman Sachs has adjusted their forecast for monthly purchases of gold by central banks for 2025, projecting an increase from 38 tons to 41 tons—over double the average before 2022, when acquisitions hovered around 17 tons monthlyYet, despite this positive outlook on central bank demand, Goldman maintains its prediction for gold prices to reach $3000 per ounce by the second quarter of 2026, attributing this expectation to a potential tapering of the Federal Reserve's interest rate cuts this year, which could result in diminished demand from gold ETFs.

This confluence of factors driving gold trading demonstrates the intricate dynamics of global commerce and the ever-evolving financial landscape