The global gold market relies on a network of banks, refineries and couriers that can fly bullion between key trading hubs at a moment’s notice in pursuit of the highest prices. On Friday, a shock US ruling suggesting that the metal would be subject to tariffs plunged that system into chaos.
The apparent decision by the US Customs and Border Protection agency — announced privately in a letter to a Swiss refiner on July 31 and made public Friday — sent gold futures in New York soaring to a record, as insiders warned the tariffs would have dire consequences for the market. Then, just as quickly, prices tumbled after the Trump administration suggested imports of gold bars wouldn’t face tariffs after all.
It was the latest example of President Donald Trump’s trade war triggering wild gyrations in markets, for equities, raw materials and finished products alike.
Gold bullion is typically treated more as a financial instrument than a physical product, and slapping tariffs on it would have such profound consequences that many traders argued Friday the ruling had to be a mistake.
“The problem was that the government didn’t look outside of the question of the physical format and did not take into consideration that this widget was actually gold,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase & Co.
A complex and sometimes fragile system for making and moving gold bars underpins the global market for the metal, including the futures exchanges in New York and Shanghai as well as a huge over-the-counter market overseen by London banks. Key consumer hubs in Mumbai, Dubai and Hong Kong rely on it as well.
There is more than $1.1 trillion in gold bars stored in vaults to underpin trading in New York and London alone, with much of it stored by major dealers including JPMorgan and HSBC Holdings Plc.
Refineries in Switzerland play a crucial role in facilitating the flow of gold between London and New York. A trade group representing them said Friday that the apparent tariffs would render any future US shipments unviable. Asian refineries put a temporary halt on US-bound sales. At the epicenter of the turmoil in New York, observers warned that tariffs would pose a major threat to the gold futures market itself.
“The disbelief isn’t just that several billion dollars have been made and lost overnight,” said Ross Norman, a four-decade veteran of the industry who now runs Metals Daily, a pricing and analysis website. “The problem is we’re not in a good position when things become disrupted. When things blow out, you get lots of injuries.”
Roughly $300 Billion of Gold Changes Hands Every Day
The dysfunction was immediately reflected in the spread between prices on CME Group Inc.’s Comex exchange in New York and the global benchmark price set in London. New York futures hit a new high above $3,530 an ounce on Friday, while the London market was more than $100 lower.
That was a record gap, but the 3% spread would be nowhere close to covering the apparent cost of import levies, which would differ from country to country under Trump’s reciprocal tariff regime.
US Gold Imports By Country (2024)
Typically, if New York prices rise sufficiently, the large-format bars that are traded in London are melted down in Switzerland and recast as smaller, 1-kilogram (2.2 pound) bars that are deliverable on Comex. But with Switzerland facing a 39% reciprocal tariff, Comex prices would have needed to rise to about $4,700 an ounce for the shipments to become feasible.
To plug the gap, US buyers might have been able to turn to other key suppliers, including Canada and Mexico. But Trump has threatened stiff tariffs on those countries, too.
Unlike gold miners, independent refineries survive on razor-thin margins. The Swiss trade group warned Friday that shutting them out of such a significant market would have adverse consequences for the global gold trade.
The hope — similarly held among the investors, traders, banks, and logistics firms blindsided by the US ruling — was that the White House would step back from the brink. It may do just that: The administration intends to post an executive order clarifying what it called misinformation about the gold tariffs, according to an official.
“From day to day, we learn more about new rules that could dramatically change the landscape of each commodity,” said Darwei Kung, head of commodities and portfolio manager at DWS Group. “Perhaps more change will result from the negotiation in the days to come.”
The apparent decision by the US Customs and Border Protection agency — announced privately in a letter to a Swiss refiner on July 31 and made public Friday — sent gold futures in New York soaring to a record, as insiders warned the tariffs would have dire consequences for the market. Then, just as quickly, prices tumbled after the Trump administration suggested imports of gold bars wouldn’t face tariffs after all.
It was the latest example of President Donald Trump’s trade war triggering wild gyrations in markets, for equities, raw materials and finished products alike.
Gold bullion is typically treated more as a financial instrument than a physical product, and slapping tariffs on it would have such profound consequences that many traders argued Friday the ruling had to be a mistake.
“The problem was that the government didn’t look outside of the question of the physical format and did not take into consideration that this widget was actually gold,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase & Co.
A complex and sometimes fragile system for making and moving gold bars underpins the global market for the metal, including the futures exchanges in New York and Shanghai as well as a huge over-the-counter market overseen by London banks. Key consumer hubs in Mumbai, Dubai and Hong Kong rely on it as well.
There is more than $1.1 trillion in gold bars stored in vaults to underpin trading in New York and London alone, with much of it stored by major dealers including JPMorgan and HSBC Holdings Plc.
Refineries in Switzerland play a crucial role in facilitating the flow of gold between London and New York. A trade group representing them said Friday that the apparent tariffs would render any future US shipments unviable. Asian refineries put a temporary halt on US-bound sales. At the epicenter of the turmoil in New York, observers warned that tariffs would pose a major threat to the gold futures market itself.
“The disbelief isn’t just that several billion dollars have been made and lost overnight,” said Ross Norman, a four-decade veteran of the industry who now runs Metals Daily, a pricing and analysis website. “The problem is we’re not in a good position when things become disrupted. When things blow out, you get lots of injuries.”
Roughly $300 Billion of Gold Changes Hands Every Day
The dysfunction was immediately reflected in the spread between prices on CME Group Inc.’s Comex exchange in New York and the global benchmark price set in London. New York futures hit a new high above $3,530 an ounce on Friday, while the London market was more than $100 lower.
That was a record gap, but the 3% spread would be nowhere close to covering the apparent cost of import levies, which would differ from country to country under Trump’s reciprocal tariff regime.
US Gold Imports By Country (2024)
Typically, if New York prices rise sufficiently, the large-format bars that are traded in London are melted down in Switzerland and recast as smaller, 1-kilogram (2.2 pound) bars that are deliverable on Comex. But with Switzerland facing a 39% reciprocal tariff, Comex prices would have needed to rise to about $4,700 an ounce for the shipments to become feasible.
To plug the gap, US buyers might have been able to turn to other key suppliers, including Canada and Mexico. But Trump has threatened stiff tariffs on those countries, too.
Unlike gold miners, independent refineries survive on razor-thin margins. The Swiss trade group warned Friday that shutting them out of such a significant market would have adverse consequences for the global gold trade.
The hope — similarly held among the investors, traders, banks, and logistics firms blindsided by the US ruling — was that the White House would step back from the brink. It may do just that: The administration intends to post an executive order clarifying what it called misinformation about the gold tariffs, according to an official.
“From day to day, we learn more about new rules that could dramatically change the landscape of each commodity,” said Darwei Kung, head of commodities and portfolio manager at DWS Group. “Perhaps more change will result from the negotiation in the days to come.”
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