Gold has rarely been a hotter trade, but the world’s two most important markets remain out of sync. In New York, the price of gold on April 9 topped US$1,750 for the first time in seven years. In London, it still has not caught up.
The dislocation first blew out late last month, when disruptions from the COVID-19 pandemic sparked concerns among traders about getting gold to New York in time to settle futures contracts.
In a chaotic couple of days, the premium for New York futures over the London spot price rose above US$70 — the highest in four decades.
The disconnect has remained wide as some of the world’s largest banks, which are also the top gold dealers, have grown wary.
Gold futures settled down 1.9 percent at US$1,698.80 an ounce in New York, falling 2.5 percent for the week.
Even though there is now plenty of time to get metal to New York for June delivery, the wild moves of recent weeks, and the potential for coronavirus-induced logistical headaches, have increased the perceived riskiness of trading the two markets.
“I would guess that the risk managers are not allowing these big positions to be run,” said John Reade, chief market strategist at the World Gold Council. “It’s moved from a concern about availability and transferability of metal to one of risk appetite.”
There has been some progress. Having traded at as much as US$60 in the past two weeks, by Friday morning the spread narrowed to about US$13 an ounce. Yet that still compares with just a few US dollars in normal times.
In theory, it should be relatively easy for any trader spotting such a wide differential between the two largest gold markets to arbitrage it profitably — by buying gold in London then selling it in New York and profiting from the difference.
One problem is size. The London market trades large 400-ounce bars, whereas only 100-ounce bars and kilobars are deliverable in New York.
Nonetheless, gold refiners around the world produce kilobars, which are the type of gold that is typically used to settle Comex futures and is popular with investors. This means it is usually straightforward to get hold of them and deliver to New York.
The pandemic has made that process more difficult. Gold typically flies around the world on passenger planes, and a vast number of flights have been canceled due to the pandemic. Even though Switzerland’s gold refineries have restarted since early this month, the temporary shutdown made it harder to get hold of certain products.
“Everyone wants to get gold into the same airplane. There’s almost a fight,” said Drazen Repak, head of trading banknotes and precious metals at Zurcher Kantonalbank.
MARKET BOOST: Elon Musk said Tesla would resume bitcoin transactions once there is ‘reasonable’ clean energy usage by miners and denied selling a big part of his holdings Bitcoin yesterday hit a two-week peak just shy of US$40,000, after another weekend reacting to tweets from Tesla Inc chief executive Elon Musk, who fended off criticism over his market influence and said Tesla sold bitcoin, but might resume transactions using it. Bitcoin has gyrated to Musk’s views for months since Tesla announced a US$1.5 billion bitcoin purchase in February and said it would take the cryptocurrency in payment. He later said the electric vehicle maker would not accept bitcoin due to concerns over how mining the currency requires high energy use and contributes to climate change. “When there’s confirmation of reasonable
China Steel Corp (中鋼), the nation’s biggest steelmaker, yesterday said that it would not be raising prices for some products next month, ending 12 consecutive months of increases. “There is a discrepancy between China Steel’s prices and international prices, but in consideration of price stability, we have decided not to adjust upward monthly-priced products,” the company said in a statement. That means the price of hot-rolled steel plates, hot-rolled steel coils, cold-rolled steel coils and other monthly-priced items would not change next month. However, the cost of other items priced seasonally would be going up, the company said, adding that prices of products
Synopsys Inc, a US-based electronic design automation solutions provider, yesterday said that it has signed up more than 20 of its clients for the latest device made using the most recent advanced process developed by Taiwan Semiconductor Manufacturing Co (TSMC, 台積電). Synopsys’ DesignWare IP, which is used by designers of integrated circuits, has been used by more than 20 clients in a wide range of industries, including automotive electronics, artificial intelligence, high-performance computing devices and servers, the company said in a statement. The DesignWare IP solution was made using TSMC’s advanced 5 nanometer process, its latest technology, which the semiconductor giant launched
MOVING ON UP: Taiwan improved in all four areas measured by the IMD, making its biggest leap, from 17th to sixth place, in economic performance Taiwan moved up three spots from last year to place eighth, its best performance since 2013, in the latest annual world competitiveness rankings, released yesterday by the International Institute for Management Development (IMD). Innovation, digitalization, welfare benefits and social cohesion are critical to economic performance, with Switzerland, Sweden, Denmark, the Netherlands and Singapore making up the top five on the list this year, the Switzerland-based institute said, after grading 64 countries and regions based on economic performance, infrastructure, and government and business efficiency. “Leading performers are characterized by varying degrees of investment in innovation, diversified economic activities and supportive public policy,” IMD