Shortage intensifies, gold prices hit new highs! Concerns over Trump's tariffs on gold lead to rare significant discounts by the Bank of England on gold

Media reports indicate that due to market concerns over potential tariffs that the Trump administration may implement, traders are rushing to withdraw gold, causing the gold trading price at the Bank of England (BOE) to fall below market prices, resulting in a withdrawal queue lasting several weeks.

On Wednesday, spot gold prices surged to a historic high of $2,880 per ounce, with a significant increase in demand for gold as a safe haven. According to insiders who spoke to Bloomberg News, the Bank of England's gold quotes were more than $5 per ounce lower than the London spot price.

Rare Discount on Bank of England Gold Trading

Typically, the Bank of England's gold prices align with those of the London market, where gold is stored in vaults operated by institutions such as JP Morgan and HSBC, just a few minutes' drive away.

However, in recent months, the price discrepancies in the market have reached unprecedented levels. In the past, due to central bank trading activities, the premiums or discounts on gold trading at the Bank of England's vaults usually did not exceed a few cents, but this time the difference has exceeded $5, causing concern in the market.

Analysts believe that this phenomenon is driven by global traders rushing to transport gold to the United States to avoid potential tariffs and obtain premiums. Although Trump has not yet imposed tariffs specifically on precious metals, he has threatened to impose comprehensive tariffs on a range of imported goods, raising market fears that gold could be included.

Delays in Gold Withdrawals at the Bank of England, Traders Turn to Commercial Vaults

Due to the rush to withdraw gold, staff at the Bank of England have been unable to meet the surge in demand, leading to significantly extended waiting times for gold withdrawals from the vaults. In contrast, gold stored in London commercial vaults (such as those of JP Morgan and HSBC) is more readily available, prompting traders to prefer gold from these vaults.

The Bank of England currently holds over 400,000 gold bars, with a total value exceeding $450 billion, most of which belongs to various central banks, while a small portion is stored by major gold traders. However, the total gold storage in the London market exceeds 8,000 tons, much of which belongs to exchange-traded funds (ETFs), central banks, and long-term investors, who are typically reluctant to sell, resulting in a shortage of available gold in the market.

Premiums in the U.S. Gold Market Surge, London Gold Market Experiences "Backwardation"

Recently, gold prices on the New York Mercantile Exchange (Comex) have been significantly higher than the international market benchmark prices, as traders rush to close positions to guard against potential tariffs on gold by the Trump administration. Although this price gap has narrowed, the available gold in the London market remains in short supply, as traders who previously sold futures at high prices are eager to obtain physical gold for delivery This tense situation can be seen from the gold leasing rates. The one-month gold leasing rate has surged to 4.7%, far above the nearly zero normal level. This rate reflects the return that investors holding gold in the London market can obtain when lending gold in the short term.

Currently, the one-month forward price of gold is lower than the spot price, indicating a "backwardation" in the market, which is an extremely rare situation in the gold market.

During periods of market tension, some central banks generate income by lending out gold, with their gold primarily stored at the Bank of England, making the gold reserves of the Bank of England a key source of market liquidity. Robert Gottlieb, former head of precious metals trading at JP Morgan, stated:

"The market is completely mismatched, and the available inventories of both gold and silver seem to be very scarce.

Gold trading banks in the market are scrambling to borrow gold from central banks, and the Bank of England is not a commercial vault and cannot handle such large demand, ultimately leading to a bottleneck in withdrawals."

Additionally, the standard gold bars traded in the London market are 400 ounces, while the gold bars accepted by the New York Mercantile Exchange (Comex) are typically 100 ounces or 1 kilogram. Therefore, traders must first re-refine the gold in places like Switzerland before it can be transported to the United States. This process has led to a tight supply of available gold in the market, causing U.S. gold premiums to reach as high as $50 per ounce at one point.

John Reade, senior market strategist at the World Gold Council, stated:

"Some traders may regret storing gold at the Bank of England and may consider transferring it to commercial vaults in the future, although this means higher storage costs."

The London Bullion Market Association (LBMA) issued a statement on Wednesday noting that it has observed market concerns regarding potential U.S. tariff policies and is closely collaborating with market infrastructure providers, market participants, trade associations, and regulators to monitor the situation and clarify the scope of the tariffs.

Currently, global traders are closely watching further policy developments from the Trump administration, and the future price trends in the gold market remain highly uncertain.

Gottlieb believes that gold and silver are likely to be excluded from tariffs because they are considered monetary metals. However, he noted that many traders are still forced to close positions as their losses continue to expand.

"This is what I call a 'pain trade.'"

"At some point, you ultimately have to grit your teeth and take the loss."