Is this a short squeeze on Gold?
Clackamas1
Posts: 1,094 ✭✭✭✭✭
This is looking like a short squeeze. Is it? What are your thoughts.
0
Clackamas1
Posts: 1,094 ✭✭✭✭✭
Comments
No. Not in backwardation.
Knowledge is the enemy of fear
Holders of real gold are simply squeezing their hands tighter around it
Repetition of ignorance is ignorance raised to the power two.
Lease rates are up.
I knew it would happen.
Gold trades at a discount in London.
Knowledge is the enemy of fear
Gold trades at a discount in London.
Apparently this is because London doesn't have eligible physical metal and the discount you reference is the paper contract.
I knew it would happen.
This article states the discount is in physical bullion. Where did you see this discount is on contracts?
Gold Dealers Sell BOE Bullion at Discount in Tariff Turmoil https://www.bloomberg.com/news/articles/2025-02-05/gold-dealers-sell-boe-bullion-at-big-discounts-in-tariff-panic
Whereas the article states backwardation, there is not, as futures prices are higher for later dates.
Knowledge is the enemy of fear
The BOE doesn't trade futures and backwardation in the futures market doesn't have anything to do with the discount on BOE gold. The discount and arbitrage that is taking place has nothing to do with paper contracts from the London commercial banks.
https://google.com/url?client=internal-element-cse&cx=e644b33a7719ef93e&q=https://auronum.co.uk/whos-taking-all-the-gold-londons-liquidity-crisis-sparks-panic/&sa=U&ved=2ahUKEwiGq8jYkLSLAxUzmokEHUuUAPcQFnoECAUQAg&usg=AOvVaw0m2_8L_90WI4le2WmNYe0b
The London gold market is facing an unprecedented surge in short-term borrowing costs, driven by a mass movement of Gold to the United States which is trading at a premium to the London Gold price.
This liquidity squeeze has sent borrowing rates soaring, with the gold forward offered rate (GOFO) hitting 10% on an annualised basis, a drastic jump from the historical norm of 2-3%.
The spike signals severe constraints in Gold availability, raising concerns among market participants and policymakers alike.
The Bank of England gold discount has emerged due to a surge in demand for Gold shipments to the United States. This rush has led to a rare price discrepancy, with gold stored in the Bank of England’s vaults trading at a discount of over $5 per ounce compared to the London spot price. Typically, Gold in the BOE vault aligns with prices at major commercial vaults like JP Morgan and HSBC, but withdrawal delays—now stretching to several weeks—have made BOE gold less attractive to traders. The tightness in London’s gold market is further exacerbated by soaring leasing rates (up to 4.7%).
As central banks seek to profit from lending gold. Additionally,a logistical bottleneck exists since the 400-ounce gold bars stored in London must be refined into smaller bars before being shipped to New York, adding costs and delaying deliveries. The mismatch in supply and demand has triggered backwardation—where the spot price of gold exceeds future prices—a rare signal of short-term scarcity. With traders frustrated by delays and shifting to commercial vaults, the BOE’s role as a gold custodian is now under scrutiny, raising concerns about its ability to efficiently manage large-scale gold withdrawals.
https://google.com/url?client=internal-element-cse&cx=e644b33a7719ef93e&q=https://www.mining.com/web/gold-dealers-sell-boe-bullion-at-discount-in-tariff-turmoil/&sa=U&ved=2ahUKEwj1nb3lk7SLAxVRl4kEHQvqN8cQFnoECAEQAg&usg=AOvVaw1yxRgnApM-luNXr_5rZUyo
Gold in the Bank of England vault is trading at a discount to the wider market, as fears over potential Trump tariffs spark a scramble for bullion that’s resulting in weeks-long queues to withdraw metal.
Dealers are quoting prices for gold at the BOE at discounts of more than $5 an ounce below spot in London, according to people with direct knowledge of the situation.
Sign Up for the Precious Metals Digest
The size of the divergence is extremely unusual, with gold at the BOE usually trading in lockstep with prices in the rest of the London market, where bullion changes hands in vaults a few minutes’ drive away run by JPMorgan Chase & Co., HSBC Holdings Plc and others. Previous premiums and discounts — driven by central bank trading activity — have generally been no more than a few tens of cents per ounce, traders said.
The disconnect comes as traders worldwide rush to get gold to the US ahead of the potential imposition of tariffs and to capture premium prices. US President Donald Trump hasn’t targeted precious metals specifically as he ratchets up his trade war, but dealers are worried they could be included in blanket tariffs that he’s threatened.
With traders racing against the clock, staff at the Bank of England are struggling to keep up, and growing queues are making the gold in its vault less attractive than bullion held in more accessible commercial vaults around London.
The BOE didn’t immediately respond to a request for comment.
The BOE holds more than 400,000 gold bars, worth over $450 billion at current prices, largely on behalf of other central banks, but also for a few key gold dealers. That’s only a portion of the more than 8,000 tons of gold stored in London, according to LBMA data, but much of that is owned by exchange-traded funds, central banks, and other investors who may not wish to sell.
Prices for gold on New York’s Comex surged over international benchmarks in recent months, as traders closed out short positions for fear of being hit with tariffs by President Donald Trump’s administration. Those spreads have since come down, but freely available gold remains in tight supply in London as traders who sold futures at the high prices seek to secure metal to deliver on their commitments.
The tightness can be seen in one-month lease rates for bullion, which have jumped to about 4.7%, far above the usual level of close to zero. The rate reflects the return that holders of bullion in London’s vaults can get by loaning their metal out on a short-term basis.
Forward prices for gold in one month are currently below spot rates, according to data compiled by Bloomberg. That structure, known as backwardation, is highly unusual for the gold market.
Some central banks look to earn a return by lending out their gold when rates do rise. Since they predominantly hold their gold at the BOE, that means the bullion in its vault is often a key source of liquidity in moments of market tightness.
“The bottleneck was created by an onslaught of bullion banks looking to borrow gold from central banks at the Bank of England, and the fact that the BOE is not a commercial vault and is not prepared to handle this, thus creating queues,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase.
The typical 400-ounce bars that are traded in London can’t be directly shipped into New York to deliver onto the Comex exchange. Instead, traders must re-refine the bars into 100-ounce or kilobars in places like Switzerland, before flying them to the US. The premiums grew as large as $50 an ounce, making it a lucrative trade.
This isn’t the first time the BOE — a relatively low-cost option to store gold — has been subject to delays, according to John Reade, an industry veteran and senior market strategist at the World Gold Council.
“I suppose having their gold at the Bank of England is a decision that some people may be regretting at the moment and maybe that’ll cause them to rethink it and keep it with a commercial vault, albeit at a higher expense,” Reade said.
The London Bullion Market Association said it is aware of concerns about “current market dynamics caused by US tariffs.” The group said in a Wednesday statement that it “has been monitoring and liaising closely with relevant market infrastructure providers, market participants, trade bodies and authorities to monitor developments as well as clarify the blanket tariffs requirements.”
I knew it would happen.