Gold is rushing from London to the US in quantities never seen before.
The Gold futures contract, traded at the COMEX owned by the CME Group in the US, is trading for $23.57/oz higher than current spot London price. This is a rare occurrence that only has happened twice before since 1970.
In 2020 Gold futures spiked to a $20/oz premium due to COVID, and in 1980 Gold futures spiked to a $29/oz premium due to inflation fears.
The London Bullion Market Association (LBMA) is world’s store of physical metal. And the LBMA has run out of physical Gold. The exchange has delayed physical delivery to four weeks as they scramble for physical metal.
Reuters reported on January 29, 2025, stating:
“London bullion market players are racing to borrow gold from central banks, which store bullion in London, following a surge in gold deliveries to the United States on speculation of potential import tariffs there, two sources familiar with the matter said.
The minimum waiting time to load gold out of the Bank of England, which stores gold for central banks, has reached four weeks, one of the sources said. In normal times, the release time is a few days or a week.“
Due to the price difference between the US based futures contract and the London based spot price, traders can simply sell a future on COMEX and buy physical in Gold London and lock in $23.57/oz profit, or $2,357 per futures contract each equal to 100 Gold oz. The problem is London is out of physical Gold. Gold is available at a retail level in one-ounce bars and coins, but on a 100 oz bar institutional level Gold is out of stock.
Gold has been rushing into the COMEX as traders short the higher priced Gold future in the US and get long the spot price in London to lock in the arbitrage. Gold open interest, representing the total number of contracts outstanding, spiked higher due to the price discrepancy.
There are no limits to the amount of futures contracts outstanding. For every futures seller there has to be a buyer. So when arbitragers rush in and short the higher priced COMEX Gold contract open interest climbs higher. Bullion Banks JP Morgan, Brinks and HSBC are forced to take the other side of the trade. You can see vaulted Gold held by the Bullion banks vaulting higher to cover their increased long positions.
Trump tariffs only play an indirect effect on this run on physical Gold. Remember, this is 3D chess our political leaders are playing. Trump is expected to place 25% tariffs on China this weekend. China is going to continue to hit the US where it hurts by attacking the USD. China has been selling US Treasuries for years dropping from peak $1.3 trillion in 2024 to $780 billion now. China is now reinvesting its trade surplus into tonnes of Gold instead of Treasuries. China represents a giant straw sucking physical Gold out of the physical market in London.
This reduces demand for Treasuries, while US public debt continues to rise. This is why our 10 year rate increased a full percent after the Fed began to cut rates last September. Treasury debt buyers have walked away. Treasury Secretary knows the US has a problem because prior Secretary Yellen financed most of the current debt at the short end of the curve. This debt is now rolling over, and Bessent needs to shift the borrow to the long end. But the current 4.5% 10 year rates are too high. The US can’t support the increased interest payments. The only way the US can lower 10 year rates is by increasing demand, but our trade partners have walked away choosing to own gold, and they aren’t coming back anytime soon. The US is alone and needs to create Treasury demand themselves to artificially drive yields lower.
Look for major changes to the mandate of the US Federal Reserve very soon. Long independent, the Fed Reserve is going to be forced to succumb to pressure from the Executive Branch. Trump said many times he needs lower rates. Bessent sees the need for a Shadow Fed Governor to represent the Treasury’s interest at the Fed. Trump was asked if Powell is going to listen to Presidential demands. Trump replied with a smug “Yeah”. Trump is going to force the Fed Reserve to comply. This will be the 1st time in 100 years the Fed Reserve will become a political agency. It’s a big deal.
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Rising interest payments directly affect the US financial strength and are a national crisis. QE5 representing Yield Curve Control will be implemented to drive rates lower. The Fed will be forced to buy Treasury debt driving their balance sheet trillions of dollars higher. As the Fed steps in, foreign buyers will flee Treasury debt, leaving the US as the only buyer.
This represents straight up debt monetization seen at the end of every great empire. While nominal rates will remain low due to Fed Reserve buying, real rates will remain many percentage points higher. As the Fed’s balance sheet rises, look for Gold to continue to rise. Gold will do what it’s always done for 1,000 years and act as the canary in the coal mine for monetary devaluation.