Why are U.S. Banks Flying Gold from London to New York?
By James Liddell
About 8,000 gold bars have been moved out of the Bank of England’s vaults in recent months.
Deep under London’s Threadneedle Street lies an intricate network of tunnels holding the world’s second-largest depository of gold.
The Bank of England’s nine heavily fortified vaults hold hundreds of tonnes of the precious metal valued at more than £200 billion ($252 billion).
But now, they are slowly being emptied over fears that President Donald Trump is about to start a global trade war.
Much of the gold has been shipped to New York City where the commodity is, for the moment, worth substantially more than in the U.K. capital.
The U.S. bank JPMorgan and the U.K.’s HSBC are two of the biggest names flying the precious metal across the Atlantic to cover losses on short positions, reports the Wall Street Journal.
The disruption to the gold market, and subsequent movement of bullion from London to Manhattan, appears to be a consequence of Trump’s looming tariff threats against imports from the European Union entering the U.S.
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Donald Trump signed an executive order on reciprocal tariffs in the Oval Office at the White House on February 13
This week, the president has already announced sweeping 25 percent import taxes on two other metals: steel and aluminum.
Traders are now nervous that Trump will impose tariffs on gold.
Deputy Governor of the BoE Sir Dave Ramsden, told The Telegraph it had been inundated with requests after New York’s futures market prices surged above the London cash price.
Gold futures in the Big Apple have risen 11 percent this year, closing Thursday at $2,935 a troy ounce. Some analysts predict they could soon hit a record-high of $3,000 a troy ounce.
Roughly 8,000 bars are believed to have been moved out of the Bank’s vaults over the past few months, equating to about two percent of its total stock.
Gold bars (photographed here stacked in the U.S. Mint in New York) are being flown from London to Manhattan in the wake of Donald Trump’s tariff threats
Some of the world’s biggest financial institutions are now capitalizing on the emerging arbitrage opportunity.
Banks are, in essence, shorting the price of gold.
JPMorgan and HSBC – who have access to huge gold supplies in London – often lend out bullion to borrowers who need to use it as collateral. Interest is charged on the loan, with the banks hedging against price decreases by selling gold futures in New York.
In February alone, JPMorganChase is estimated to deliver more than $4 billion in gold against futures contracts in New York, according to Comex filings.
And, since Election Day when Trump defeated then-Vice President Kamala Harris at the ballot box in November, U.S. gold inventories have doubled.
Jetting the gold using the cargo hold of commercial flights is the cheapest way to transport the valuable commodity.
The gold is first shuttled to the airport in high-strength vans before being sent to Swiss refiners to recast – due to Comex contracts requiring different bar sizing – it before flying on to the U.S.
