Unprecedented demand for physical gold from the US Commodity Exchange (COMEX) and speculation over potential Donald Trump administration’s tariffs have led to delays in delivery of the precious metal by London’s vaults and refineries imposing temporary surcharges, analysts and various reports said.
The waiting time for London gold delivery is between four and eight weeks.
Singapore-based BullionStar said Metalor, one of the leading Swiss refineries, has introduced a per ounce (oz) surcharge on all its gold products due to shortages increasing the gold lease rate, the widening spread between spot and futures, and tariff-related factors.
Shortages elsewhere
Another Swiss refinery Argor-Heraeus has suspended orders for all 50-gram and 100-gram minted gold bars. The refinery has decided to impose a “temporary extra fee” on minted gold and silver. The Swiss refiner will impose a $3.50 per ounce of gold and $3 per ounce of silver from February 20.
Shortages are being reported in other countries, particularly in China and South Korea. On Tuesday, the spot gold price was $2,919.72 per ounce, while the yellow metal delivery in May was quoted at $2,934/Oz.
Traditionally, the spreads are narrow but increased to $60 at one point in time before dipping to $15 currently. A major reason for the rise in the spreads is a substantial flow of physical gold from London to New York.
Traders are capitalising on lower spot prices in London and higher futures prices in New York, reports said.
Institutional demand
The Discovery Alert website said concerns were mounting over the availability of physical gold versus paper gold claims. They have created anxiety among investors and financial institutions alike.
However, Ross Norman of Metals Daily Ltd said claims of physical shortage were exaggerated and rooted in logistical challenges rather than actual scarcity.
Institutional demand for gold from the US, particularly for COMEX deliveries, topped 200 tonnes for February. Over the post two months, the demand deliveries has been about 500 tonnes.
Bob Coleman, Owner Profit Plus Capital Management, wrote on “X” (Twitter) that right now, the biggest buyers of physical gold and silver are the banks which are involved in the precious metals derivatives and trading markets.
“Amazingly, four large US banks held 88.1 per cent of the total banking industry’s notional amount of derivatives. These derivative notional amounts increased in the third quarter of 2024 by $10.7 trillion, or 5.2 per cent, to $218.8 trillion,” he wrote.
Depleted stocks?
Analysts say gold clearing banks — JP Morgan, HSBC, UBS, and ICBC Standard — have depleted their available physical gold for delivery. They are depending on the Bank of England for the yellow metal’s delivery. However, the Bank of England seems to have exhausted its stockpiles.
They blame the opacity of the London Bullion Market Association (LBMA) for controlling the spot price of gold. The system accords priority to the interests of bullion banks over actual physical gold and silver.
“The LBMA lacks transparency, providing no public access to order book volumes or trading data. As a result, trading practices remain hidden from scrutiny,” BullionStar said.
Analysts say spot gold is being treated as a currency without any back of physical gold. LBMA itself does not hold gold reserves and relies on its members to provide delivery.
Paper system can collapse
BullionStar said there was a lack of transparency, misleading data, and prioritisation of paper trading over physical bullion. “The LBMA has for a long time misrepresented vault stock levels creating a false sense of security about available metals,” it said.
LBMA has been charged with the proliferation of unallocated synthetic paper gold, allowing banks to trade the precious metals with actual physical backing distorting price discovery.
Analysts estimate that for every ounce of physical metal, between 100 and 600 times more paper gold and silver are traded. Now with the US seeking physical deliveries, the paper-based system has come under pressure.
If only a small amount of those holding the metal on paper demand physical delivery, the entire paper market will collapse, say critics.