In recent weeks, concerning reports have emerged relating to the physical delivery of gold. If sources are to be believed, there have been considerable shipping delays between London and New York because of the huge volumes being transported. Standard delivery times are usually no more than a couple of days, but this has now increased to over a month according to those familiar with such matters. So what is going on?
London has long been the world’s primary centre for the trading of precious metals. The London Bullion Market Association (LBMA) accounts for roughly two thirds of worldwide physical gold trading. As of January 2025, 8,500 tonnes of gold and 23,500 tonnes of silver were stored within the LBMA’s cavernous vaults. While the Bank of England does indeed use the same vaults for its own holdings, the vast majority of the precious metals within are the property of various international banks, bullion dealers and refiners.
On the other side of the Atlantic, New York is home to COMEX, or The Commodity Exchange. COMEX is essentially the metals branch of the Chicago Mercantile Exchange (CME), but unlike its British counterpart deals exclusively in futures contracts. This is not to say that those futures contracts cannot be physically delivered, but this very rarely occurs.
To the obvious question then: why is so much gold being sent from London to New York?
The first element of an answer is of course the looming threat of tariffs. Much of the gold stored under the streets of London will belong to American entities. If President Trump is serious about enacting wide-ranging tariffs on goods coming into the United States, why should gold be any exception? If tariffs are indeed on the cards, the advantage of pre-emptively shipping goods is obvious.
This line of reasoning has been cited by financial analysts and even by the LBMA itself, but it is worth exploring in a little more depth. In particular, why is JPMorgan importing $4 billion in gold bullion?
Whether tariffs will end up affecting gold or not is almost irrelevant. If markets think there is a possibility, it will be priced in. Moreover, the larger players involved in this game, such as international banks, have an obligation to cover all possible risks.
Typically, futures contracts will price a commodity higher than the actual spot value, a situation known as contango. In the case of gold, the COMEX price is higher than the figures being quoted for actual bullion. This leads to a small but workable arbitrage opportunity, which generates huge revenues for those in a position to take advantage of it.
All well and good, but a somewhat delicate balancing act – one that could be quickly upended by a sudden tariff for example. Both paper and physical gold prices would spike. This would be a disaster for the likes of JPMorgan, who would lose out massively if it had to cover futures contracts at a higher price. By importing huge amounts of gold before the contracts expire, banks can bypass this problem and maintain an arbitrage advantage by settling physically if they have to. Having gold bullion on hand is essentially an insurance policy. International banks will have entire teams dedicated to staying on top of situations like these.
So that’s it. Entire planes full of gold are being flown over the Atlantic because of some fleeting agreements that typically would not leave the confines of a database.
The logistics of doing so are certainly nothing to be sniffed at. One overlooked aspect of the operation is that the gold bars stored in London do not meet the required specification of the COMEX deliverables. London favours the larger, 12.5 kg bars whereas New York demands smaller, 100-ounce ingots. As a result, London gold first has to be transported to refineries in Switzerland to be recast to the dimensions required by COMEX.
Once ready, the gold bars are transported in armoured vehicles by drivers who are not typically informed as to the contents of their trucks. After arriving at the airport, the precious cargo is loaded into the holds of commercial jets, unbeknownst to the passengers above, before being flown across the ocean. Only so much gold can be flown at a time because of insurance purposes. An airplane full of gold would be prohibitively expensive to insure.
An impressive undertaking no doubt, but one that can still be covered by the London - New York spread. Sending gold around the world by plane is nothing new, as long as the arbitrage trumps the transport costs it is a perfectly viable trade. The sheer volumes currently crossing the Atlantic are unprecedented however, hence the delays experienced by those seeking delivery out of the London vaults. The novelty has even extended to the silver trade. The premiums in silver futures are now such that is worth sending silver bullion by air – something that would normally only be done by sea freight. Interesting times call for interesting measures.
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