Recently, signs of cooling have been observed in the U.S. gold market, as the transatlantic arbitrage trade that previously drove gold prices to surge is diminishing. Due to fears that gold might be subjected to tariffs, gold prices in New York once soared above international benchmarks earlier this year, leading to an influx of gold into the United States. However, as market tensions eased, the price gap between Comex and London spot gold swiftly narrowed, gradually restoring balance to the global gold market.
Arbitrage Window Closes, New York Stocks Soar
In recent months, concerns that gold might be included on the tariff list led to substantial premiums on U.S. gold prices. At one point, the Comex futures premium over the London spot price reached as high as $60 per ounce, greatly exceeding normal levels and prompting traders to engage in transatlantic arbitrage, transporting gold to the U.S. However, as large amounts of gold flowed into the U.S. market, this arbitrage opportunity gradually disappeared, with the price gap between the two regions shrinking to about $10 per ounce, close to normal levels.
Bart Melek, Global Head of Commodity Strategy at TD Securities, noted: "Such arbitrage opportunities are dwindling. Now that U.S. gold bar stocks are ample, this situation is rare."
As of this Tuesday, data shows that Comex gold inventory has surged to approximately 39.4 million ounces, the highest level in four years. Such a large-scale gold inflow last occurred during the COVID-19 pandemic when market concerns about supply chain disruptions led traders to stockpile gold for emergencies.
Meanwhile, the cost of borrowing gold in the London market is also decreasing. In January, due to a surge in demand for Comex delivery, the implied gold lease rates soared to multi-decade highs. Now, these rates have fallen back to near zero, reflecting an improvement in market supply conditions.
The Future Market May Still Have Variability
Although it remains unclear whether the Trump administration will include gold in the tariff list, market analysts note that the price differential between New York and London for gold may still oscillate due to policy changes. However, the significant increase in Comex inventory has eased traders' concerns about market supply.
John Chen, Head of Commodity Sales for Asia at Standard Chartered Bank in Singapore, pointed out that as the economic incentive to keep gold in the U.S. wanes, New York's higher storage costs might prompt some traders to move gold back to London or elsewhere. He stated, "London could be the cheapest place to store. Depending on client demand, gold might be shipped to Hong Kong, India, and other locations."
Market Returns to Rationality, Focus on Policy Directions
The cooling of U.S. gold arbitrage trading reflects a stabilization in market supply, with the growth in Comex inventory weakening arbitrage incentives and gold price premiums falling back to more normal levels. In the future, the market should still pay attention to whether Trump's tariff policies involve gold and how the global trade environment affects the liquidity and price trends of the gold market.
