Notwithstanding the weak demand, gold prices in the domestic wholesale markets are expected to swing from a discount of $25 an ounce on international prices last month to a premium of $20 an ounce due to supply-side disruptions in the global markets, stemming from the physical transport of gold from London to New York.
The concerns over the US Government imposing tariffs on gold imports from the UK have led to the withdrawal of over 8,000 gold bars from the Bank of England’s vaults to the US. The sudden shift of gold from London has stretched gold deliveries from Bank of England to 4-8 weeks, exceeding the standard 14-day EFP (Exchange for Physical) rule.
India, one of the largest gold consumers, may face price hikes if supply constraints persist, further dampening local demand.
Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions, said the shifting of gold from the BoE to the US has reduced global supply and increased the premium in India, even while domestic jewellery demand remains low.
Furthermore, if there are delays in the physical delivery of gold from the BoE owing to logistical or regulatory issues, the situation may worsen and increase supply constraints, he added.
With the gold prices rising steadily to cross $3,000 an ounce, most US banks, hedge funds and traders are shifting their physical gold to New York, as any levy on imports from the UK will wipe out all the gains made over the year by the US investors, said an analyst.
The supply side disruption will push up the premium on physical gold to $20 an ounce from a discount of $23 an ounce logged last month, he added.
Moreover, many central banks have moved their gold reserves stored in London to their own country in anticipation of geo-political issues. Last October, RBI moved 102 tonnes of gold from the Bank of England’s vaults to India. Of the total gold reserves of 855 tonnes, the RBI now holds 510 tonnes within the country.
BoE possesses about 310 tonnes of gold as reserves for the UK, worth more than £100 billion, and also serves as a custodian for gold held by other central banks and businesses, making it one of the world’s largest gold repositories.
Since last November, BoE has registered a large outflow of bullion after Donald Trump was elected as the US President.
The shift of physical gold to the US from the UK has led to prices on the New York futures market trading at a premium over the London spot price.
With the US already imposing a 25 per cent tariff on steel and aluminium imports, investors are concerned that similar measures will be taken on gold imports.
