Call it ‘dictator chic’ if you wish, but President Trump famously loves gold fixtures and fittings. Gold, in turn, loves Donald Trump. Prices rose faster on his return to the White House than any ‘first 100 days’ since Richard Nixon’s second term began over 50 years ago.
But you? Are you feeling the love? Everyone’s inventories have leapt in value, of course, creating a book profit. The real money (and fun) however comes from moving, transforming and trading those stockpiles. And Trump’s new trade war against the rest of the planet has thrown a bucket of sand into the gears of the global bullion market.
What’s more, the impact of Trump’s trade tariffs fight on volatility, pricing dynamics and liquidity has coincided with a sudden scramble for platinum group metals, revealing further tensions, vulnerabilities and opportunities in our industry’s supply chains.
Trump himself isn’t to blame
When it finally arrived in April, Trump’s big ‘Liberation Day’ list of new US import duties made an exemption for “bullion”. That’s just as any serious analysis would have hoped and expected.
Because the US mining and refining industries are both fully mature, they would be unlikely to benefit from protectionism. More importantly, precious metal flows are driven by prices, not economic growth. That’s why they are typically excluded from headline trade balance figures.
No one thought to tell the White House that fact when it slapped a 39% tariff on Switzerland this summer, mistaking imports of Swiss-refined bullion to be part of a US economic deficit. Nor did the market leave it to chance ahead of Liberation Day this spring. Banks and dealers rushed to pour record quantities of metal into New York warehouses, because the uncertainty over how bullion would be treated threatened steep losses for anyone using US contracts to hedge the value of their non-US inventory.
The upshot? Comex-approved vaults now hold enough gold to meet domestic US end-user demand until after Trump leaves office in 2029 (or is scheduled to, at least), plus enough silver to sate US demand for three years. And while those stockpiles are likely to reverse course at some point − especially after Trump confirmed in August that “Gold will not be tariffed!” following an over-zealous reading of the rules by US Customs officials − that necessarily means smaller stockpiles and lower liquidity in other global centres in the meantime. That, in turn, presents challenges for our dynamic and flexible market to address.
Donald Trump
Interplay of physical and financial trading
Bullion, like any tangible commodity, wants to flow to where prices are highest. Usually, the size of the incentive reflects the balance of local demand and supply. Witness gold’s number one consumer nation China, for instance. The Shanghai premium over London prices typically offers a gross incentive of $8 or so per troy ounce, sucking bullion east.
Unlike the Chinese model, however, this year’s flood of metal into New York wasn’t due to US bullion commanding higher prices than elsewhere. On the contrary, actual end-user US demand remains weak at best, especially for small bar and coin. (Pro tip: Americans flock to retail bullion when there’s a Democrat running the country.) But the risk of bullion being hit with US import duties meant that prices for future delivery had to rise versus current spot prices, anticipating (if not getting anywhere close to) the potential 10% tariff being discussed for US imports of all physical goods by the Trump administration.
Silver Scramble, Platinum ‘Empty’
The resulting gap between the CME’s Comex contracts and the price of physical gold worked to suck metal into New York, sending the cost of Exchange for Physical contracts (EFPs) up to record highs above $60 per ounce. That topped even the Covid Crisis peak of spring 2020, when the UK lockdown led speculators to believe (wrongly) that metal couldn’t fly out of Heathrow.
The violence of this year’s Trump tariffs fight also saw delays of up to eight weeks to withdraw gold from the Bank of England (a deep storage rather than commercial logistics vault) plus sharply elevated lease rates to borrow metal in London.
Those borrowing costs went double for silver (a “scramble” according to one bullion bank) but most especially for platinum, thanks to a sudden surge in shipments to China. “Loco London is empty,” said one trader to the newswires, breathless if not unreasonably.
So what happens now? However things unfold in gold, silver and PGM flows, there are opportunities as well as key lessons here for all market players. The devil, as always, will be in the detail. Gambatte!
