London has temporarily overtaken New York as the global centre for gold trading because of unprecedented disruptions in the gold market, Bloomberg reports.
Ruth Crowell, CEO of the London Bullion Market Association which represents the global over-the-counter (OTC) bullion market, said that the amount of gold traded in London surpassed the US futures in recent months.
It is understood that volumes of swaps and forwards, which are traded instead of futures in the OTC market, have grown in London to the highest levels since November 2018, suggesting that traders have moved some positions from New York to the UK.
“The scale of the dislocation has really made everyone ask questions in terms of the ongoing approach of hedging long London, short Comex,” Crowell told Bloomberg. “Certainly in the short to medium future, it’s not an even hedge. So they’re having to either go OTC, or they’re reducing their trading appetite.”
The coronavirus pandemic has forced many of the world’s precious metal refineries to suspend production and affected bullion logistics as most passenger planes, which are used to transport gold products, were grounded in the spring.
Chaos in global markets meanwhile prompted investors to turn to gold as a common safe haven, but fears over its supply caused gold futures at New York’s Comex to surge to $70 an ounce above the London spot price at one point (versus a typical gap of $1.5 between one another).
This divergence in prices has damaged banks, which typically own physical bars in the UK and hedge them by selling futures on the Comex. HSBC, one of the world’s biggest precious metal traders, lost about $200 million in a single day in March.