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The cost of short-term gold borrowing in London has shot up as the shortage in the bullion world’s trading capital has starved the market of the precious metal.
A gold rush into the US — where inventories on the New York Comex have risen 88 per cent since November’s election — has drained the market in London, as traders try to get ahead of potential tariffs threatened by President Donald Trump. Users report bottlenecks of several weeks to withdraw gold from the vaults at the Bank of England.
The rate to lend gold for a week has risen to about 10 per cent on an annualised basis this year, compared with 2-3 per cent previously, according to the World Gold Council, an industry body.
“There is more gold in the US than there should be under normal circumstances, and there is less gold in London than there should be,” said John Reade, chief market strategist at the WGC. “That is causing disruption to the gold market, and has increased the cost of borrowing gold.”
Borrowers of gold are typically other commercial banks and consumers such as refineries, jewellers or industrial manufacturers, who require the precious metal but find it cheaper to temporarily borrow it rather than buy and store it.
Gold prices have climbed more than 8 per cent this year on fears of a global trade war, setting multiple record highs. On Tuesday they rose another 1 per cent to touch a new record of $2,845 a troy ounce.
Overnight leasing rates for gold recently jumped as high as 12 per cent, according to Philip Newman, managing director at Metals Focus, a London-based precious metals consultancy.
“Leasing rates are well above normal levels — and they are likely to remain volatile for some time,” he said.
Concerns over US tariffs has caused a surge of gold to flow into New York, as traders take advantage of a premium for bullion in the country.
Ruth Crowell, chief executive of the London Bullion Market Association, an industry body whose members include some of the world’s biggest banks, said that “liquidity and gold stocks remain solid” in London.
“There are challenges when the US is operating at this kind of premium, but it is something that the market is managing well,” she added.
Gold demand reached a record high last year, and was likely to set another record this year due to strong demand from central banks and investors, according to the World Gold Council’s annual trends report published on Wednesday.
Total demand rose to 4,974 tonnes last year, up 1 per cent from the previous year. Investment demand rose 25 per cent last year, fuelled by demand for gold bars and a revival of investor demand for gold exchange traded funds, which invest directly in the precious metal.
Reade, of the World Gold Council, said the “unprecedented” level of political and economic risk created by the Trump administration’s policies were likely to burnish the metal’s allure as a haven.
“This uncertainty will keep gold well-bid at times this year,” said Reade. He added that while he expected gold prices to hit more record highs in 2025, it would be unlikely to repeat its performance of last year, when the metal rose 26 per cent.
Last year central banks purchased 1,045 tonnes of gold — roughly level with the previous year, and the third consecutive year with central bank purchases of more than 1,000 tonnes.