U.S. gold demand is ‘sucking’ bullion out of other countries

Strong U.S. demand for gold is “sucking” bullion out of some countries as traders try to stockpile it before U.S. President Donald Trump’s tariffs on Canada and Mexico kick into high gear.

There’s a “glut of gold” in New York’s vaults, Adrian Ash, BullionVault’s director of research, told CNBC.

More than 600 tons, or almost 20 million ounces of gold, has been transported into the city’s vaults since December last year, according to data provided by the World Gold Council. That amount of gold doesn’t normally belong in New York, said John Reade, World Gold Council’s market strategist for Asia and Europe.

“You only keep it there when extraordinary circumstances are happening,” Reade told CNBC.

The threat of tariffs on gold has spurred U.S. banks, investors and traders to shift the precious metal into the Commodities Exchange Centre and other vaults in New York, when it would otherwise usually be stored in London.

“There are concerns that imminent tariffs on Canada and Mexico will affect both gold and silver,” said Nicky Shiels, head of metals strategy at MKS Pamp. 

Trump recently declared that sweeping U.S. tariffs on imports from Mexico and Canada will be going forward after a postponement on their implementation expires next week. On Feb. 1, the U.S. president signed executive orders imposing 25% tariffs on products from Canada and Mexico. 

But some said investors fear the tariff threat will go beyond the two countries.

There are lurking concerns that broader tariffs will also come into play in the U.K. and Switzerland, which are also large physical gold hubs, Shiels added.

“The biggest concern is that there could be a blanket tariff on all imports into the U.S. and that this could also apply to gold,” said Nikos Kavalis, managing director of Metals Focus.

Canada and Mexico are among the largest exporters of gold to the United States. The U.S. imports the most gold from Canada, followed by Switzerland, Colombia, Mexico and South Africa, according to data from OEC World.

Since Trump’s election victory last November, U.S. gold futures have largely outpaced their international counterparts, creating arbitrage opportunities for those able to shift large quantities of bullion into the U.S., according to industry watchers CNBC spoke to.

They attributed the movement largely to traders looking to close out of short positions, or those holding physical gold in New York expecting to short futures contracts to capture the outsized premium.

As of Thursday, Gold futures listed on the Comex were trading at $2,930.6 per ounce, while the price of spot gold in London was $2,901 — a difference of almost $30. The premium was wider in January.

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