Ross Norman of Metals Daily Ltd discusses recent claims of gold shortages in London, which have been sensationalized by the media, particularly the Financial Times. Norman argues that these claims are exaggerated and rooted in logistical challenges rather than actual scarcity. A significant movement of 435 tonnes of gold from London to New York, valued at $82 billion, has occurred due to U.S. buyers seeking physical delivery on futures contracts amidst tariff fears. However, this amount represents only a small fraction of the London gold market’s total holdings of 8,710 tonnes and its daily trading volume. The movement involves converting large 400-ounce bars into smaller kilobars in Swiss refineries before shipment to New York, creating temporary bottlenecks due to limited refinery capacity. These logistical issues are being misinterpreted as shortages, while in reality, the U.S. now holds an excess of gold that will likely return to London after processing.
Gold prices continue to hit all-time highs, $2872/oz today, because of reduced market liquidity and increased borrowing costs for gold due to the rapid drawdown of physical gold from London. The cost of borrowing gold has surged from under 1% to over 10%, impacting key players like bullion dealers, miners, and jewelry manufacturers who rely on borrowing rather than owning gold outright. Additionally, heightened demand for physical gold in the U.S., combined with high premiums on kilobars and global economic uncertainties, has driven prices upward. This situation underscores how temporary logistical challenges and speculative fears can amplify market volatility and push gold prices higher despite no fundamental shortage in supply.
