(Kitco News) - The potential threat of a global trade war has caused a significant dislocation in the gold market, as unprecedented amounts of the precious metal flowed into U.S. vaults from London and around the world.
There are also growing fears that there may not be enough gold in the London market to meet demand in over-the-counter (OTC) markets, as wait times for physical delivery have expanded from a few days to four weeks. However, one market analyst said that concerns over the bullion market are overblown.
In a note published Thursday, Bernard Dahdah, a precious metals analyst at Natixis, said that flows into New York vaults make sense if investors are worried about tariffs. However, he added that he thinks it is unlikely the Trump administration will follow through with its threats.
President Donald Trump, after numerous threats toward Mexico and Canada, delayed levying tariffs against the two nations for 30 days.
“In theory, the movement of gold from London into COMEX makes sense if the level (accounting for the cost of financing, transport, insurance, etc.) remains under the nominal impact of the new tariff,” he said.
Dahdah noted that premiums in the Exchange of Futures for Physical (EFP) markets reached a high of $60 an ounce, well above the historical average of $1 per ounce. Already, some market players are starting to question the move as transportation costs continue to rise.
Dahdah said that the inventory shift could prove a costly mistake for some players in the bullion market.
“Firstly, unless the US imposes tariffs on all imports or gold from any country then the metal will always find a way (tariff free) to be rerouted into the US. As opposed to other commodities, gold can be transported quickly (by plane) and at a very low cost,” he said in the note. “Secondly, putting tariffs on gold imports would not be popular with the US president’s fan base. This, either from the investment community or from goldbugs, would equate to putting a tax on any investment purchase.”
Dahdah also noted that concerns over physical gold inventories in London are also overblown. Although U.S. vault holdings have jumped by 433 tonnes to 1,034 tonnes, the London market held 8,686 tonnes as of the end of December.
Looking beyond the gold market’s supply dynamics, Dahdah is fairly bullish on gold, as he sees prices pushing above $3,200 an ounce and averaging around $2,725 an ounce for the year.
In his estimate submitted to the London Bullion Market Association’s annual forecast, Dahdah said central bank demand and renewed investor interest will continue to drive prices higher through 2025.
“Central bank demand will remain close to 2024 levels with continued de-dollarization efforts by those that are not friendly with the Western bloc (mainly concerns stemming from the freezing of Russian assets following the Ukraine invasion),” he said in his forecast. “We also see a return in Western investor demand, which will lead to positive flows into physically backed ETFs.”
