Key highlights

• The gold market has seen a significant rise in COMEX gold inventories, along with a widening of  the spread between futures and spot prices, sparked by tariff uncertainty

• This, combined with reports of falling inventories in London, has fuelled speculation about  stability in the gold market 

• Events like these have happened before and the market has normalised • As such, we believe that the disruptions will likely ease…although the current environment of  elevated geoeconomic risks could result in intermittent spikes

• Most importantly, despite all the noise, the gold spot market has remained well behaved – and  has generally benefited from flight-to-quality flows.

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

In summary

Gold has not been a direct target of tariffs, but market reactions to trade uncertainty has driven a significant shift in trading  behaviour and impacted the gold price. The movement of gold from London to the US, rising COMEX premiums and  concerns over availability were largely the result of risk management decisions rather than true supply issues.

Now that COMEX inventories appear to be well-stocked and the backlog of withdrawals from the BoE continues to be  cleared, these disruptions should ease over the coming weeks. However, this period serves as a stark reminder that even  indirect trade policy concerns can send ripples through global financial markets. 

This may not be the last time we see temporary distortions in the gold market. The signs are, however, that the depth and  liquidity of the gold market is able to absorb – over time – most of these shocks.