Gold Vault Discounts at Bank of England Amid Tariff Fears
As the threat of Trump tariffs looms, gold in the Bank of England (BOE) vault is trading at significant discounts due to a surge in demand for bullion. The price discrepancy, which exceeds $5 per ounce compared to the London spot market, is unprecedented.
Traders are eager to secure gold ahead of potential tariffs, resulting in extended waitlists to withdraw metal from the BOE. Unlike gold stored in commercial vaults, bullion in the BOE vault is less accessible due to operational constraints.
The premium on gold at the BOE highlights the global rush to transport gold to the US to capture higher prices. While precious metals were not explicitly targeted by Trump's tariffs, dealers worry about potential blanket tariffs.
The BOE, which holds over 400,000 gold bars worth approximately $450 billion, is primarily serving as a custodian for central banks and key gold dealers. However, only a portion of the vast gold reserves stored in London, estimated at over 8,000 tons, are readily available for sale.
In recent months, gold prices on New York's Comex exchange have surged against international benchmarks due to traders closing short positions amid tariff concerns. While these spreads have narrowed, freely available gold remains scarce in London.
The tightness in the gold market is evident in inflated lease rates for bullion, which have jumped to 4.7%. Forward prices for gold are below spot rates, a market structure known as backwardation, which is unusual.
Some central banks earn a return by lending out their gold reserves. Due to the BOE's prominence in gold storage, bullion in its vault often serves as a key liquidity source during times of market stress.
However, delays at the BOE have prompted concerns regarding the accessibility of stored gold. Experts speculate that some investors may reconsider storing their gold at the BOE in favor of commercial vaults, despite higher costs.