The opening salvos of a new global trade war and soaring demand caused gold prices to surge this week, with gold hitting new record highs in major currencies. With risk levels elevated by the Trump administration’s policies, many analysts believe this momentum could continue well into the year.
Gold has hit a new US record of $2,883.02 per ounce, and also saw new highs in GBP and Euros of £2,320.41 and €2,771.70 respectively.
Although tariffs on Canada and Mexico were delayed by a month, the introduction of tariffs on China, and fears that goods from the EU will be next has caused market volatility.
Gold Shortages and Soaring Lease Rates
There have been growing reports of a significant draining of physical gold from London's vaults to the US since the election in November, as traders hope to beat any potential tariffs that could impact gold, and to benefit from the opportunity of higher prices.
There are indications many parties are insisting on physical delivery rather than the usual cash settlement, suggesting strong demand for actual metal in hand. The LBMA have reported that stock and liquidity in the London market remains strong, however, the sharp increase in delivery times from a few days to between four and eight weeks indicate a different story.
Further reports this week also suggest that the unprecedented flows of physical gold may now be a global phenomenon. Reuters have reported that "global bullion banks are flying gold into the United States from trading hubs catering to Asian consumers, including Dubai and Hong Kong, to capitalize on the unusually high premium that U.S. gold futures are enjoying over spot prices". In recent months Comex futures prices have sat substantially above gold spot prices, providing banks a lucrative arbitrage opportunity by moving gold across the pond for Comex delivery to cash in, further accelerating the flow.
Spike in Gold Lease Rates
Adding another layer to this evolving market picture, gold lease rates have surged significantly. Traditionally, lease rates hover around 2% to 3% per annum, reflecting the cost of borrowing physical gold when one party lends a large volume of physical gold to another, often used by banks, refineries and mints. When lease rates go up, it becomes more expensive to borrow gold, which can lead to tightening supply.
Recent developments have pushed these rates to over 10% annually, suggesting that lenders are either reluctant to part with their gold as it’s no longer economical to lend it or that the demand for physical gold is reaching new heights. When lenders recall their gold, it can create a pinch in the supply chain because much of the leased gold is already “in use.” This can lead to supply constraints, especially if more market participants decide to hold onto their metal instead of leasing it.
How this impacts BullionByPost?
As BullionByPost own the majority of our stock outright and un-leased, we have not been impacted by the current spike in gold lease rates or shortages of wholesale bullion. The events of the past few weeks mark a significant deviation from the market norm however, and if big players are demanding physical delivery on huge numbers of futures contracts, this could be the start of a new chapter in an already unprecedented period in the gold market.
We have seen an increase in both buying and selling as investors react to the incredible year of gains for gold, and further concerns over tariffs and geopolitical policies by President Trump suggest there is plenty of scope for further price records.
Analysts are increasingly confident that gold will pass $3,000 per ounce this year. With the pace of gains so far in 2025 however, it may not take long before gold reaches these levels.
