MW Why there's now 'incredible demand for physical gold' in New York markets

By Myra P. Saefong

Comex gold warehouse stocks have climbed 30% in 2 weeks

A rush on physical gold, thanks to President Donald Trump's tariff plans, has fueled a rise in prices of the precious metal to fresh record highs.

There are many demand drivers in gold currently, but one in particular is adding pressure to an already tight market, said Peter Spina, president and founder of gold news and information provider GoldSeek.com. "There is incredible demand for physical gold in New York markets," he said, referring to it as a "physical gold rush."

'There is incredible demand for physical gold in New York markets.'Peter Spina, GoldSeek.com

Prices for gold on Thursday climbed to a record high, with the April futures contract (GCJ25) (GC00) on Comex touching a high of $2,853.20 an ounce. That was the highest intraday level for most active contract on record, according to Dow Jones Market Data.

Trump's plan for tariffs is "creating a scramble for physical [bullion] as a threat of 25% tariffs could shoot the price of imported gold to $3,500 an ounce," Spina told MarketWatch. "There is so much uncertainty and fear surrounding potential tariffs coming soon that buyers are desperately trying to source gold and silver before prices could skyrocket, as there is not enough domestic supply of gold to meet demand."

The situation for silver (SI00), meanwhile, would be significantly worse as several times more silver is imported, primarily from Mexico and Canada, into the U.S. to meet domestic industrial and investment silver needs, said Spina.

"Those who are caught short physical metal are looking around and seeing a window closing here," he said. They're "desperately seeking physical metal before the price could jump overnight."

Price spreads

A big price spread has emerged between the London spot price and the near-term New York futures prices for gold, as well as for silver, said Stefan Gleason, president and chief executive at bullion dealer Money Metals Exchange.

That's based on fears of Trump slapping tariffs on imports of gold and/or silver from China, Canada or Mexico - if not across the board, he told MarketWatch.

On Thursday afternoon, Trump told reporters at the White House that the tariffs on Canada and Mexico will start Saturday.

Read: Here's how much gas could cost you if Trump's threatened tariffs go through

In silver, the price spread has ranged from 15 cents to 90 cents an ounce over the past 45 days - "extremely large spreads at their peak," Gleason told MarketWatch on Wednesday. In gold, it's ranged from $10 to $50 an ounce, he said.

"Market players are covering gold and silver short positions on the Comex, and others are arbitraging this heavily, especially by expediting gold and silver into the U.S. from all over the world," he said.

To arbitrage, or buy and sell an asset to profit from price differentials, traders have to be able to source the metal at a lower price and have the "ability to deliver into the contract after having locked in the other side of the trade at the higher price," said Gleason. A trader could buy silver, for example, in London, sell it in the New York futures market, and ship it to the Comex exchange, he said.

The London-New York price spread was especially wide in mid-December, but returned again in the past two weeks due to renewed tariff concerns and possible action as early as Feb. 1, Gleason said.

On Wednesday, the spread from London spot to the March Comex silver contract, which is the most-active contract, reached 80 cents over London, he said. For gold, the February Comex contract topped $20 over London, Gleason said.

Stockpile shift

The Financial Times reported Wednesday that a surge in gold shipments to the U.S. has led to a shortage of bullion in London. It cited one industry executive as saying that people can't get their hands on gold because so much has been shipped to New York.

The "risk of a short-covering event in a market where paper trades dwarf the physical holdings" is higher, said Brien Lundin, editor of Gold Newsletter. And under that type of situation, there's a higher risk of a rally in prices, though that's not necessarily a "probability or likelihood."

When asked to comment on the FT report, a spokesman for the Bank of England told MarketWatch by email that "there is no shortage of gold," but there are "longer than usual wait times to get gold transferred out of the Bank of England vaults," given higher demand.

Adrian Ash, director of research at online bullion market BullionVault, said that "digging out physical bullion bars from large vaulted stockpiles takes time, manpower, trucks and transport" - which would be ships for silver and passenger plane holds for gold.

"Meeting a surge in demand will always stretch capacity, but London vaults have been working overtime to service this London-New York flow," said Ash.

Meanwhile, the London Bullion Market Association, or LBMA, told MarketWatch that the U.S. gold market has been trading at a premium to the London market since the U.S. presidential election result in late 2024.

"This happens from time to time in markets around the world," the LBMA said in a statement to MarketWatch, adding that it has been "monitoring and liaising closely with the CME Group and with U.S. authorities."

"London gold market stocks and liquidity remain strong," it said.

Data from the LBMA and the Bank of England on gold holdings aren't updated in real time, with the latest numbers from December.

Still, gold warehouse stocks on Comex, according to the CME $(CME)$, were at about 30.4 million ounces as of Jan. 28, compared to 23.3 million ounces on Jan. 14 - a more than 30% rise over a two-week period.

That's led some to believe that there's been a shift in gold bullion - from London to New York - and many see Trump's tariffs plans as the reason behind it.

See: Trump tariffs on Canadian lumber could be a 'nightmare' for California's fire recovery

However, "the scale and breadth of tariffs is still unknown - including whether tariffs would hit raw materials at all, certain commodities, but not gold and silver, just manufactured goods, or even nothing at all," said Money Metals Exchange's Gleason.

-Myra P. Saefong

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January 31, 2025 07:00 ET (12:00 GMT)

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