As global gold continues to flow into the United States, the gold inventory at the New York Commodity Exchange (Comex) has been steadily climbing, reaching 39.7 million ounces on Wednesday, March 6th, the highest level since 1992, with a total value of approximately $115 billion. This surge has been primarily driven by the soaring prices of New York futures gold and arbitrage trading, although the pace of inflow has recently slowed.
Why has the gold inventory surged?
Since early December last year, Comex's gold inventory has doubled, partly because the price of New York futures gold significantly exceeded that of London gold (spot gold), attracting traders to engage in cross-market arbitrage. Typically, the price difference between New York futures gold and London gold is small, only reflecting transportation, storage, and financing costs. However, at the end of last year, market concerns that gold might be included in the Trump administration's tariff measures led some traders to close their short positions on Comex, causing New York futures prices to far exceed London spot prices.
This price difference created a profitable arbitrage opportunity for traders, leading them to transport significant amounts of gold to the United States, rapidly increasing Comex's stockpile. Currently, Comex's gold reserves have surpassed the previous record high set in February 2021, when global market turmoil caused by the COVID-19 pandemic led to a surge in gold demand, boosting inventories significantly.
Gold inflow begins to slow
It is noteworthy that the gold price difference between the New York and London markets has been narrowing recently, and the rate of gold inflow into the United States is gradually slowing. Previously, the premium of New York futures gold over London gold exceeded $50, but it has now narrowed to about $7. Meanwhile, the daily inflow of gold into Comex's vaults has decreased from over 1 million ounces at the end of January to about 200,000 ounces or less recently.
Under normal circumstances, short positions in Comex gold futures are typically closed through cash settlement, but they can also opt to deliver physical gold to exchange-registered vaults, such as those operated by major banks like JPMorgan and HSBC, which might have recently adopted this method.
Currently, Comex's gold inventory is equivalent to about 80% of the total open interest in Comex gold futures, significantly higher than the roughly 20% level seen prior to 2020. In the past, banks preferred to hold more gold in London and hedge by selling futures in New York, but this pattern is now changing.
Future market outlook
Although Comex's gold inventory has reached a historical high, the pace of gold inflow has noticeably slowed as arbitrage opportunities diminish and market tensions ease. Going forward, the market's focus will be on whether the price difference between New York futures gold and London gold continues to narrow and the potential impact of changes in Federal Reserve monetary policy on the gold market.
