U.S. President Donald Trump’s tariffs are already having unintended and somewhat strange economic repercussions. For example, they have led to big banks transporting billions of dollars of gold via commercial planes from London to New York City.
The price of gold, which investors tend to buy during times of heightened risk, has been on the rise. Gold futures, contracts for the future delivery of gold at a set price, that trade in New York’s Commodity Exchange (Comex (CME+0.29%)) have risen 11% this year and closed at $2,909 a troy ounce on Wednesday. The Wall Street Journal reports that some analysts project that future contracts could soon reach $3,000 for the first time.
However, following Trump’s election and his threat to impose tariffs on Europe, the price of physical gold in London has been trading about $20 lower since early December.
Normally, prices in these two markets move in sync because traders can ship gold between them whenever there is a price gap. Banks play a big role in these markets by holding gold bars in London, lending them out to earn returns, and protecting themselves from potential price drops by selling futures contracts in New York. JPMorgan (JPM-0.23%) and HSBC (HSBC-0.25%) are key players, as they handle gold transactions and store gold for other banks in London.
However, banks that had sold gold futures are now facing losses, as U.S. prices surged above those in London.
Rather than buying back futures at a loss, they have a better option — shipping physical gold from their London reserves to New York to fulfill their contracts. This move allows them to avoid losses on their earlier bets and even make a profit by selling additional gold at the higher U.S. price.
JPMorgan alone plans to deliver $4 billion of gold to New York this month, the Wall Street Journal reported.
This gold rush has triggered a logistical nightmare, with some clients waiting up to a week to retrieve their gold from the Bank of England’s vaults.
Additionally, Comex contracts require gold bars to be a specific size, forcing traders to send their gold to refineries for recasting before shipping it to the U.S.
Finally, the cheapest and safest way to transport such large amounts of gold is via commercial flights. According to the Wall Street Journal, banks are using security firms to move the gold in armored vans to London’s airports.
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