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Strong U.S. demand for gold is “sucking” bullion out of some countries as traders try to stockpile it before U.S. President Donald Trump’s tariffs on Canada and Mexico kick into high gear.
There’s a “glut of gold” in New York’s vaults, Adrian Ash, BullionVault’s director of research, told CNBC.
More than 600 tons, or almost 20 million ounces of gold, has been transported into the city’s vaults since December last year, according to data provided by the World Gold Council. That amount of gold doesn’t normally belong in New York, said John Reade, World Gold Council’s market strategist for Asia and Europe.
“You only keep it there when extraordinary circumstances are happening,” Reade told CNBC.
The threat of tariffs on gold has spurred U.S. banks, investors and traders to shift the precious metal into the Commodities Exchange Centre and other vaults in New York, when it would otherwise usually be stored in London.
“There are concerns that imminent tariffs on Canada and Mexico will affect both gold and silver,” said Nicky Shiels, head of metals strategy at MKS Pamp.
Supply chains have been disrupted because of this huge sucking sound, which has been the United States importing gold ahead of the potential tariffs.
John Reade
World Gold Council
Trump recently declared that sweeping U.S. tariffs on imports from Mexico and Canada will be going forward after a postponement on their implementation expires next week. On Feb. 1, the U.S. president signed executive orders imposing 25% tariffs on products from Canada and Mexico.
But some said investors fear the tariff threat will go beyond the two countries.
There are lurking concerns that broader tariffs will also come into play in the U.K. and Switzerland, which are also large physical gold hubs, Shiels added.
“The biggest concern is that there could be a blanket tariff on all imports into the U.S. and that this could also apply to gold,” said Nikos Kavalis, managing director of Metals Focus.
Canada and Mexico are among the largest exporters of gold to the United States.
The U.S. imports the most gold from Canada, followed by Switzerland, Colombia, Mexico and South Africa.
Since Trump’s election victory last November, U.S. gold futures have largely outpaced their international counterparts, creating arbitrage opportunities for those able to shift large quantities of bullion into the U.S., according to industry watchers CNBC spoke to.
Tariff concerns
They attributed the movement largely to traders looking to close out of short positions, or those holding physical gold in New York expecting to short futures contracts to capture the outsized premium.
As of Thursday, Gold futures listed on the Comex were trading at $2,930.6 per ounce, while the price of spot gold in London was $2,901 — a difference of almost $30. The premium was wider in January.
U.S. warehouses now stock four years’ worth of U.S consumer and gold demand, according to data from BullionVault. That’s coupled with production from the domestic mining industry, which already produces enough to meet two-thirds of annual gold demand per year, said BullionVault’s Ash.
U.S. domestic production of gold in 2024 was estimated to be at 160 tons, down from 170 tons in 2023, according to data from the U.S Geological Survey.
The traders are of the view that Trump “could whack 100% tariffs” on U.S. gold imports tomorrow without it making a dent on U.S. gold prices, because there would be enough gold in the vaults, said Ash.
Though there’s usually no pressing need for physical gold deliveries, investors need to be assured that they can be made — something Trump’s tariffs threaten to disrupt.
“Very few people have to make deliveries normally, but you always need to be able to make deliveries,” said World Gold Council’s Reade.
“But if you’re now suddenly worried that you might have to pay an import tariff, then you don’t want your gold in London, you need to have it in New York before the tariff comes in,” he said.
Supply chain disruption
The surge in demand for gold into New York’s warehouses has led the U.S. to scour the globe for bullion bars.
“Supply chains have been disrupted because of this huge sucking sound, which has been the United States importing gold ahead of the potential tariffs,” said Reade.
A complicating factor is that Comex depositories largely make deliveries via kilogram bars, which are usually available only in select regions like China, Southeast Asia, the Middle East and India, he added.
“There is only a limited capacity for refineries to produce one kilogram bars,” said Reade.
“Suddenly everybody has been trying to get hold of one kilogram bars that are eligible to be placed in Comex warehouses and ship them to New York, and that means that other gold flows have been interrupted,” he added.
On a whole, supplies of gold kilobars are being diverted to the United States, market watchers said. London, often referred to as the terminal market for gold, experienced a big impact from the shift.
“As the market has been shifting inventories of gold from private London vaults to Comex vaults, the availability of metal in private vaults in London has been declining,” said Metals Focus’ managing director Kavalis.
Large gold bars are also being pulled out of London to other refineries around the world where they can be melted and refined into kilobars, because the standard bullion stored in London are 400-ounce bars rather than kilobars.
Gold reserves in London’s vaults fell for the third consecutive month in January. The amount of gold reserves in January was 1.7% lower than in December.
Gold exports from Switzerland into the U.S. in January also rose to the highest level in at least 13 years. And Singapore has shipped more gold than it normally would to the United States, Kavalis noted.
Just to hedge against these tariffs, gold has been shipped to the U.S., and that “sucks gold out of the rest of the system,” said Reade.