August eighth, two thousand twenty-five
《Gold’s Breakout to New Highs… Fails (for Now)》
“Gold’s breakout to new highs… fails (for now)”
COMEX gold tried to break to a new high on news of Trump’s tariffs on imported gold bars, but failed，In fact, the market had long worried that precious metals might be swept into the United States’ broad import-tariff regime. This transatlantic arbitrage had been the main trading theme for precious metals throughout the period leading up to the end of the second quarter this year, until the precious-metals exemption at the time appeared…
Chart: The initial breakout attempt failed after the news, with selling pressure pushing prices back down intraday
Going back to the end of last year, dollar liquidity was already tight, and gold term trades in practice required substantial balance sheet resources, many Many institutions needed to sell spot gold for dollars and then cover the corresponding short futures positions. In other words, when these institutions sold spot for dollars, they had to close their futures shorts, but the market lacked sufficient futures supply. This increasingly drove the premium of COMEX futures prices over London spot prices sharply higher and also led to the subsequent arbitrage shipping trade.
The gold-market arbitrage process basically consists of four steps:
1) Buy LBMA large 400-ounce gold bars circulating in the London market;
2) Melt and recast them in Switzerland into deliverable COMEX-ounce gold bars of 100;
3) Airfreight them to New York;
4) Deliver them before the first-notice date for the 2025 2 contract.
As a result, large quantities of gold were shipped to New York. 2500 ten-thousand ounces of gold that did not originally belong to the New York market were brought there and have still not left. COMEX inventories surged from 1000 ten-thousand ounces to 4000 ten-thousand ounces by the middle of 2 month..
Chart: Notes 250418 “The story of the physical-gold scramble behind New York–London gold delivery and paper gold”
EFP was originally a short-term convenience tool (allowing buyers and sellers with genuine physical needs to transact spot quickly and hedge price risk with futures); financing and storage costs were short-term, but this batch of gold flowing into New York became a long-term exposure with no maturity date.
This spot exposure also faces price risk and must be hedged:
Chart: Notes 250729 “Volatility Convergence”
In this transatlantic arbitrage process, European traders wanted to ship gold bars to New York to capture the premium, but first had to recast London-standard 400-ounce bars into the 100-ounce specification required by the U.S. COMEX exchange, The key link in the arbitrage chain is Switzerland’s gold refineries.
In fact, Switzerland holds a highly distinctive position in the smooth functioning of the global gold market: if prices in London and New York diverge, Swiss refineries can melt and recast the large bars traded in the U.K. market into smaller bars deliverable against U.S. futures contracts, and vice versa.
These precious-metal flows can cause major swings in Switzerland’s trade balance. Swiss customs data show that gold exports hit a record of more than 360 hundred million dollars in the first quarter of this year, accounting for over two-thirds of Switzerland’s trade surplus with the U.S. The export surge drove a sharp increase in the U.S. trade deficit with Switzerland, making Swiss gold exports a focus of trade talks between the two countries.
1-kilogram gold bars are the most common delivery form on the world’s largest gold-futures market, the New York Mercantile Exchange (Comex), and are also the main category of Swiss gold exports to the U.S. The Swiss National Bank explained in a report earlier this year that, although gold trading involves enormous sums, refining operations are relatively small in scale. Only five companies in Switzerland produce investment-grade gold, and most have only a few hundred employees, Although the price of gold processed by refineries this year has surged to nearly 3500 dollars per ounce, refineries typically earn only a few dollars in profit when recasting bars. They therefore believe the unusually large volume of gold exports to the U.S. should not be included when analyzing trade relations between the two countries，This is one reason the Swiss government has remained confident it can avoid steep tariffs and secure an exemption for precious metals, at least.
Traders largely held the same expectation after the second quarter: bars of 1 kilograms and 100 ounces would continue to receive special exemptions from Trump’s tariffs. However, according to the current confirmation from U.S. Customs and Border Protection, the tariffs now in effect do apply equally to bars of 1 kilograms and 100 ounces, contrary to the industry’s initial understanding that they were exempt.
After the news, gold EFP (the spread between exchange-traded futures and spot) diverged sharply, and the premium over London prices at one point reached 70 to 120 dollars per ounce:
Chart: Fears over tariffs on gold-bar imports push up the U.S. gold premium
Chart: Comex August/December gold spread
One question arising from this is whether CBP will treat the 400-ounce bars that dominate London trading in the same way, and what tariff rates the major gold-producing countries will face. If they are not subject to tariffs, these bars can be shipped directly to the U.S. and recast into 1-kilogram bars.
However, even so, The United States’ limited gold-refining capacity would still make the CME contract unviable, because the spread between spot and futures prices would be constrained by capacity issues, which would be good for no one.
Taking the arbitrage shipping at the beginning of the year as an example, this In 1, U.S. monthly gold imports surged to a high of 43 tons, as traders rushed to ship gold to the U.S. before possible tariffs. By comparison, U.S. Geological Survey data show that Last year, domestic gold refineries in the U.S. produced an average of only 22 tons per month.
We had originally expected gold to reach new highs in 10 or 11, because by then the market would offer a safer environment to support this trade, rather than the crowded, sudden rally driven by man-made events we see today. Every event-triggered price move creates a price vacuum, and squeezes during such vacuum periods are extremely dangerous.
Chart: Notes 250729 “Volatility Convergence”
Furthermore, today’s price moves are attributed to U.S. tariffs on gold imports from Switzerland, but the New York market was already oversupplied with gold, with every dealer having stockpiled excess inventory in the first quarter.
More importantly, after the sudden threat of copper tariffs and the later sudden removal of the risk of excluding refined copper, the market itself had already become extremely sensitive. From the largest daily gain in history to the largest daily loss in history,, it is all still vivid in everyone’s memory,
Everyone’s willingness to wade into the murky waters has fallen sharply.
Chart: COMEX The copper precedent remains fresh in our minds.
Until there is clarity, the gold market and the broader precious-metals market are expected to remain highly tense.
The ideal timing we expected has not arrived; the corresponding response was already laid out in last week’s Wrap. If gold really does make a new high under the impact of this event before 10 month.....
Chart: Weekly Wrap 250803
We would choose option one.
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2025.08.08
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