Gold Stockpiling in New York Sparks London Bullion Shortage – A Market Shift or Overreaction?

Liquidity Concerns, Arbitrage Opportunities & Policy Risks

A seismic shift is occurring in global gold markets as a surge in shipments to the U.S. has led to a supply shortage in London. Since the U.S. election in November, approximately 393 metric tonnes of gold have been moved into the vaults of the COMEX commodity exchange in New York, propelling inventory levels by nearly 75% to 926 tonnes – the highest since August 2022.

This mass migration of gold stems from concerns over potential tariffs on bullion imports by the Trump administration. Traders are preemptively moving assets to the U.S., fearing that Trump’s broader trade policies could extend to precious metals. Historically, gold has been largely exempt from tariffs, but given Trump’s unpredictable approach to trade policy, market participants are hedging their bets.

However, this is not merely a reaction to political uncertainty. A crucial driver is the arbitrage opportunity between the U.S. futures market and the London spot market. Gold futures on COMEX have been trading at a premium of up to $60 per troy ounce over London’s prices, incentivising traders to shift physical gold across the Atlantic to capitalise on the price gap. Though this premium has since compressed to $10 per troy ounce, the movements have significantly impacted liquidity in London.

Liquidity Concerns in London

The repercussions of this shift are being felt acutely in the London bullion market, the world’s primary hub for physical gold trading. The Bank of England (BoE), which holds reserves for central banks and financial institutions, is struggling to meet withdrawal demand. Previously, it took a few days to access gold from BoE vaults – now, withdrawals take between four and eight weeks. A diminished supply pool in London increases price volatility and complicates hedging strategies for investors reliant on physical gold for collateral or trading purposes.

Despite these concerns, BoE Governor Andrew Bailey has sought to reassure market participants, insisting that London remains the world’s leading gold trading centre. While this is true, the current backlog highlights a crucial weakness: the over-reliance on London’s physical gold market for liquidity.

MY ANALYSIS: Implications for Investors

While some market participants compare this U.S. gold rush to the COVID-19-induced stockpiling of 2020, the motivations differ. During the pandemic, logistical constraints and economic uncertainty drove investors towards gold as a safe haven. Now, the key drivers are arbitrage opportunities and speculative fears of tariffs.

From an investment standpoint, the impact of this stockpiling is twofold:

1. Short-term price dislocations – The price premium in New York could create further arbitrage opportunities, but it is likely to normalise as supply and demand rebalance. The current gold price, hovering just $30 below its all-time high of $2,790 per troy ounce, reflects both geopolitical uncertainty and supply-side constraints.

2. Long-term market liquidity risks – If London continues to lose physical supply to New York, we could see disruptions in price discovery and settlement. While some investors prefer holding gold in COMEX-approved vaults for delivery against futures contracts, others require access to the spot market in London for hedging and collateral purposes. If liquidity remains constrained, it could impact gold leasing rates, ETF-backed reserves, and broader market stability.

MY OUTLOOK: A Temporary Shock or Structural Shift?

The key question is whether this shift is a short-term reaction or a signal of a deeper structural change in gold markets. If Trump does impose tariffs on gold, this would introduce significant distortions, forcing traders to reconfigure supply chains. However, the market appears cautiously optimistic that bullion will remain exempt from duties, as suggested by some analysts.

In my view, while fears of tariffs are likely overblown, the current liquidity crunch in London underscores the fragility of physical gold markets. Investors should closely monitor BoE withdrawal times, COMEX inflows, and the persistence of the U.S. price premium. Those holding gold as a hedge should consider whether geographic diversification is warranted to mitigate risks associated with regional liquidity constraints.

Ultimately, gold remains a crucial asset for portfolio diversification, but understanding the nuances of supply and demand between London and New York is essential for navigating the evolving landscape. The coming months will determine whether this shift is a temporary arbitrage play or a more permanent transformation in global gold flows.