Gold has rarely been a hotter trade, but the world’s two most important markets remain out of sync. In New York, the price of gold on April 9 topped US$1,750 for the first time in seven years. In London, it still has not caught up.
The dislocation first blew out late last month, when disruptions from the COVID-19 pandemic sparked concerns among traders about getting gold to New York in time to settle futures contracts.
In a chaotic couple of days, the premium for New York futures over the London spot price rose above US$70 — the highest in four decades.
The disconnect has remained wide as some of the world’s largest banks, which are also the top gold dealers, have grown wary.
Gold futures settled down 1.9 percent at US$1,698.80 an ounce in New York, falling 2.5 percent for the week.
Even though there is now plenty of time to get metal to New York for June delivery, the wild moves of recent weeks, and the potential for coronavirus-induced logistical headaches, have increased the perceived riskiness of trading the two markets.
“I would guess that the risk managers are not allowing these big positions to be run,” said John Reade, chief market strategist at the World Gold Council. “It’s moved from a concern about availability and transferability of metal to one of risk appetite.”
There has been some progress. Having traded at as much as US$60 in the past two weeks, by Friday morning the spread narrowed to about US$13 an ounce. Yet that still compares with just a few US dollars in normal times.
In theory, it should be relatively easy for any trader spotting such a wide differential between the two largest gold markets to arbitrage it profitably — by buying gold in London then selling it in New York and profiting from the difference.
One problem is size. The London market trades large 400-ounce bars, whereas only 100-ounce bars and kilobars are deliverable in New York.
Nonetheless, gold refiners around the world produce kilobars, which are the type of gold that is typically used to settle Comex futures and is popular with investors. This means it is usually straightforward to get hold of them and deliver to New York.
The pandemic has made that process more difficult. Gold typically flies around the world on passenger planes, and a vast number of flights have been canceled due to the pandemic. Even though Switzerland’s gold refineries have restarted since early this month, the temporary shutdown made it harder to get hold of certain products.
“Everyone wants to get gold into the same airplane. There’s almost a fight,” said Drazen Repak, head of trading banknotes and precious metals at Zurcher Kantonalbank.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
RSS