Are London’s Gold Shortages Just a Tariff Scare or Something More?
Reports this week suggest a significant scarcity of physical gold in the London market. This deficit is linked to the intention of bullion banks to relocate substantial quantities of metal to the United States before potential tariffs on precious metals imports are put into effect by President Trump. However, this scenario raises several issues. Initially, gold is not merely a commodity or consumer product, as the items Trump has been discussing in the context of tariffs, but the highest form of money. Therefore, it is illogical to impose tariffs on money inflow to the U.S. for investment and production. Additionally, if the U.S. government does indeed have financial obligations regarding gold loans and swaps, impeding the import of monetary metal would create further obstacles. The second challenge with the tariff scare narrative is that U.S. bullion banks have been efficiently utilizing New York Commodities Exchange futures contracts to procure gold from London through mechanisms such as “exchange for physical” and “exchange for risk.” Hence, gold transactions continue fluidly between both cities, assuring that metal is transferred when necessary.
Moreover, there are speculations that the Bank of England has been lending gold from its vaults to facilitate bullion banks in acquiring metal for relocation to New York. Although gold lending usually involves paper transactions wherein IOUs are exchanged, not physical metal, it seems implausible that central banks seeking to repatriate gold from London and New York would comply with moving their stock farther from their supervision. This shift contradicts the ongoing trend in central banking to withdraw gold from these traditional centers to safeguard against potential asset confiscation by the U.S. or its allies.
It is plausible that the purported gold shortage in London could be a fabrication aimed at spreading misinformation. Reports from the Financial Times and Reuters mentioned anonymous sources, making accountability unattainable. Considering the persistent rise in global demand for gold, particularly from Asian countries and Russia, China, and BRICS nations contemplating incorporating gold into an alternative international trade currency system, a true scarcity might be the reality rather than a gold surplus. The possibility of a revaluation of gold by major central banks, propelled by diminished metal reserves amidst escalating demand, can’t be disregarded. The current surge in gold prices, attributed to mounting debt levels in various nations and consequent currency devaluation, aligns with long-standing theories about central banks strategizing gold reserve redistribution to devaluate currencies and inflate indebtedness for profit in a revaluation setup.
Allegations by London metals trader Andrew Maguire hint at a protracted gold price revaluation process, evidenced by gradual price increments, suggesting controlled price management by central banks. The leasing of substantial gold quantities by the Bank of England, as mentioned in recent FT and Reuters reports, potentially indicates efforts to avoid tumultuous gold price surges, implying central banks might not be fully prepared for an imminent revaluation. However, these actions could be interpreted as stalling tactics while awaiting optimal market conditions for initiating a revaluation plan. Conceivably, a forced revaluation paradigm overseen by major central banks, entailing all participating entities, might be executed swiftly to maintain strategic control over global financial dynamics.