Gold dealers sell BOE bullion at discount in tariff turmoil

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.

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.”

(By Yvonne Yue Li, Jack Ryan, Jack Farchy and Sybilla Gross)