Fears of U.S. tariffs triggered an 88% jump in New York Comex inventories as traders move gold supply, causes shortage in London gold leasing rate by 10%.
The cost of short-term gold borrowing in London has surged as a supply crunch in the bullion market’s key trading hub tightens availability. US gold inventories on the New York Comex have surged 88% following President Donald Trump’s election in November, as traders attempt to hedge against potential tariffs. Delays up to several weeks have been reported to withdraw gold from the vaults at the Bank of England.
However, according to the chief executive of the London Bullion Market Association, Ruth Crowell, “liquidity and gold stocks in London remain solid.” “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.
As per the World Gold Council (WGC), the weekly gold lending rate has gone up by around 10% on an annualized basis the current year, as compared to an increment of 2-3% last year. The chief market strategist at the WGC, John Reade mentions, “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. That is causing disruption to the gold market, and has increased the cost of borrowing gold.”
Commercial banks, refineries, jewelers, and industrial manufacturers are among the market participants who frequently borrow gold since they frequently find that leasing the metal is more economical than buying and storing it outright.
Record Gold Prices Amid Economic and Political Uncertainty
Gold prices have reached multiple highs this year, soaring more than 8% this year on account of a global trade war anticipation. Rising another 1% last week, prices touched $2,845 a troy ounce. According to Philip Newman, managing director at Metals Focus, a London-based precious metals consultancy, overnight leasing rates for gold have also spiked lately, going as high as 12%. “Leasing rates are well above normal levels — and they are likely to remain volatile for some time,” he noted.
Demand for gold is anticipated to breach another high this year as per the WGC’s latest annual trends report, following the robust demand from investors and central banks. Overall demand was up by 1% in 2024 compared to the prior year, at 4,974 tonnes. Investment demand spiked up by a whopping 25% too, driven by rising appetite for gold bars and a renewed interest in gold-backed exchange-traded funds (ETFs).
Market Outlook
John Reade from the UGC pointed out that the “unprecedented” levels in uncertainty, both in the economic and political spheres due to Donald Trump administration’s policies, could enhance the metal’s appeal as a safe haven for investment. “This uncertainty will keep gold well-bid at times this year,” said Reade. Though gold is expected to touch higher highs this year, it is improbable to surpass last year’s performance of a 26% rise, he added.
