(Bloomberg) -- Premiums for gold and silver futures in New York swelled as traders weighed the possibility of precious metals being included in sweeping tariff measures proposed by US President-elect Donald Trump.
Gold futures for delivery in February traded as much as $60 an ounce, or 2%, over spot prices in early London trading, while silver futures were more than $1 an ounce, or 3%, higher.
“It’s all preemptive fear prepositioning ahead of tariffs,” said Nicky Shiels, head of metals strategy at MKS Pamp SA. The price moves have been fueled by short covering by banks and funds who are buying Comex futures and selling contracts in London, she said.
New York futures typically trade in lockstep with the London spot price, with many banks and traders arbitraging between the two markets via what is known as the “exchange for physical,” or EFP.
“If some market participant believe that there is a non-zero probability of tariffs affecting gold, silver and copper imports then it makes sense to cover any short EFP positions,” said John Reade, a strategist for the World Gold Council.
“It might cost a little money to do so, but the potential cost of not doing so is enormous,” Reade said, pointing out that traders would risk losing nearly $300 per ounce of gold if 10% tariffs were enacted, far in excess of the potential profits to be made if precious metals are exempted from the measures.
The last big blow out in spreads came at the beginning of the coronavirus pandemic, when traders grew fearful 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 $70 — the highest in four decades.
Gold for immediate delivery was up 0.7% at $2,713.89 an ounce at 11:06 a.m. in New York, following a 1.3% gain on Tuesday. The Bloomberg Dollar Spot Index rose 0.2%. Silver and and palladium rose, while platinum fell.
--With assistance from Jack Farchy.
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