Tariff shock sends gold futures soaring – yet spot market holds the real signal

Key points:

• Gold futures on the COMEX exchange in New York soared overnight relative to the London spot price after a FT article suggested the US would apply tariffs on 1kg and 100 oz bars. 
• The US futures market is often used by bullion banks globally as a hedging tool for transactions in the physical bullion market, leaving exposed as prices spiked.
• It solidifies the London spot price (XAUUSD) as the most reliable source telling us what the real value of gold is.
• While the futures price hit a fresh record, what counts is what the spot price is doing, and it remains stuck in a range since April, with a break above USD 3,450 needed to change that.

Gold futures on the COMEX exchange in New York soared overnight relative to the London spot price after an article in the Financial Times suggested the US would now—counter to expectations—apply tariffs on imports of 1 kg and 100 oz bars adding a fresh blow to Switzerland, the world’s largest refining hub. One-kilo bars are the most common form traded and accepted into vaults monitored by the COMEX exchange, and Switzerland is often used as the refining hub between the London bullion market, which generally trades in 400-ounce bars (12.44 kg), and the smaller sizes mostly traded and accepted in the US market.

It’s worth noting that the US futures market is often used by bullion banks globally as a highly liquid, around-the-clock hedging tool for transactions in the physical bullion market. This is the main reason why we’re once again seeing the spread—reflected in the exchange for physical (EFP)—widen sharply, as short positions originally intended as hedges suddenly blow up. In the short-term the main driver has been short-covering and once that is completed the premium may ease back a bit.

We saw similar dislocations during COVID, when the transatlantic bullion supply chain briefly stalled, and again earlier this year amid speculation that Trump’s tariffs might include precious metals. For now, it’s worth watching whether another “TACO moment” will emerge. If not, the spread may need to settle at a new level that reflects the tariff landscape.

In parallel, much like the recent events in the NY copper market, these developments raise serious questions about the ability of the NY futures markets to offer a stable and trustworthy trading environment that offers the best price discovery—one that increasingly appears vulnerable to being hijacked by Trump’s shifting tariff agenda.

The December futures (GCZ5), the main traded contract on COMEX, hit a fresh record high overnight at USD 3,534, with the premium above London spot blowing out to more than USD 100 from around USD 40 this time last week. All developments that—for now—solidify the London spot price (XAUUSD) as the most reliable source telling us what the real value of gold is. Do not look at technical breakouts in the futures market as the price action is currently taken hostage by movements in the EFP. What counts is what the spot price is doing, and it remains stuck in a range since April, with a break above USD 3,450 needed to change that.