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The gold that flooded into US futures exchange warehouses in a tariff-driven arbitrage trade is now slowly trickling out.
The risk that precious metals could be caught up in trade duties pushed prices on New York’s Comex into a large premium over global benchmarks in recent months. That created an incentive for traders to ship gold to the US to take advantage of the unusual price gap.
Tens of billions of dollars’ worth of bullion flowed into the country — so much so that it distorted US trade data in the process and pushed Comex inventories to an all-time high.
But the arbitrage opportunity ended when Washington earlier this month confirmed that bullion would be exempt from President Donald Trump’s tariffs. Without an incentive to hold metal in US warehouses, that gold may now end up going to other trading hubs. Comex stockpiles fell each day last week, with Friday’s outflow the biggest in more than a year and worth about $700 million.
The price difference between front-month Comex futures and spot gold in London — which blew out to more than $50 an ounce at times in the past few months — narrowed to about $15 on Monday. Adjusting for the different delivery dates, the two markets are trading almost exactly level.
Friday’s decline in inventories was mainly the result of a drop in stocks for Comex’s “enhanced delivery” contract, which, unlike its main contract, allows delivery of 400-ounce bars — the kind also found in the London market. Inventories of gold deliverable against the main Comex contract, which allows 100-ounce and kilobars, have also seen a decline in the past week.
While millions of ounces of gold trade on the Comex every day, only a small fraction of that typically ends up being physically delivered, with most positions being rolled over or closed out before they expire.
Storage costs in New York could also encourage some traders to move their gold back to the dominant physical market in London, or to trading hubs in Asia if premiums there are attractive enough.
Spot gold was down 0.9% at $3,208.93 an ounce as of 3:09 p.m. in New York, after earlier hitting a fresh record above $3,245. The Bloomberg Dollar Spot Index was down 0.3%. Silver was little changed, while platinum and palladium rose.
(By Jack Ryan)
