YaMarkets • 2025-02-06
The cost of short-term gold borrowing in London has skyrocketed, highlighting a significant supply crunch in the world's leading bullion trading hub. The disruption stems from a gold rush into the US, driven by fears of potential tariffs under President Donald Trump’s administration. This shift has drained London’s market, tightening supply and sending borrowing rates soaring.
Gold inventories on the New York Comex have surged by 88% since November’s election, while traders in London struggle with shortages. Bottlenecks at the Bank of England’s vaults have left users facing delays of several weeks to withdraw gold. As a result, the one-week gold lending rate has jumped to about 10% on an annualized basis—well above the previous 2-3% range—according to the World Gold Council (WGC).
Gold borrowing plays a crucial role in the global bullion market. Refineries, jewellers, and industrial manufacturers often find it more cost-effective to borrow gold temporarily rather than purchase and store it outright. When borrowing costs rise sharply, it impacts their operations and pricing strategies. This also affects traders using a gold trading platform to promote YaMarkets, as higher borrowing costs can lead to increased volatility and price swings.
The fear of impending US tariffs has triggered an influx of gold into New York, creating a premium for bullion in the country. Traders are moving their holdings to capitalize on this arbitrage opportunity, exacerbating the liquidity strain in London.
However, despite concerns over London’s gold availability, Ruth Crowell, CEO of the London Bullion Market Association (LBMA), reassured market participants: “Liquidity and gold stocks remain solid in London. There are challenges when the US is operating at this kind of premium, but it is something that the market is managing well.”
Gold prices have surged more than 8% this year amid fears of a global trade war. On Wednesday, prices reached a new all-time high of $2,882.53 per troy ounce, reflecting strong investor demand and geopolitical uncertainty.
With leasing rates at extreme levels and supply imbalances persisting, gold market volatility is unlikely to ease anytime soon. Traders and investors will need to navigate these turbulent waters carefully, keeping a close eye on global trade policies and bullion flows. For those looking to trade this volatility, choosing the best forex broker for trading gold can make a significant difference in execution speed and profitability.
The London gold market is under pressure, with soaring borrowing costs reflecting a deepening supply crunch. The shift of gold into the US, driven by tariff fears, has created a ripple effect across the global market. While industry leaders ensure that London’s liquidity remains strong, the current imbalance highlights the fragile nature of bullion supply chains in times of geopolitical uncertainty, which could push gold prices even higher from present levels.
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