The High-Stakes Gold Trade Under Pressure

Gold has long been a staple of the global financial system, but its journey from mines to markets is more complex than it appears. One of the most critical yet lesser-known trade routes in the gold industry is the “triangular trade” between London, Switzerland, and New York. This system ensures that gold flows smoothly from European vaults to American markets, meeting the stringent size and purity standards required for trading on the COMEX (Commodity Exchange Inc.) in New York.

At the heart of this trade are Swiss refineries, which are working 24 hours a day to resize massive 400-ounce London gold bars into the 100-ounce bars required by U.S. financial institutions. However, this process is now facing an existential threat: the potential imposition of tariffs under Donald Trump’s economic policies.

If tariffs disrupt this established route, it could increase gold prices, slow down supply chains, and create market uncertainty—forcing investors and refiners to rethink the way gold moves across borders.

The Mechanics of Gold’s Triangular Trade

The journey of gold from London to New York via Switzerland follows a well-established process:

London as the Starting Point

• London is one of the largest gold trading hubs in the world, with vast reserves stored in vaults owned by central banks, bullion traders, and financial institutions.
• Most gold in London is held in 400-ounce bars, the standard size for London Bullion Market Association (LBMA) trading.
• However, these bars do not meet U.S. market standards, making resizing a crucial step before they can be used for COMEX futures contracts in New York.

Switzerland’s Key Role

• Switzerland dominates global gold refining, processing approximately 70% of the world’s gold.
• Swiss refineries melt down and resize 400-ounce London bars into 100-ounce bars, which are the standard size for U.S. gold trading.
• Major refineries such as Valcambi, PAMP, Metalor, and Argor-Heraeus are operating at full capacity to meet surging demand.

New York’s Gold Demand

• The U.S. financial system relies on deliverable gold reserves, particularly for COMEX gold futures contracts.
• With growing economic uncertainty, demand for physical gold has surged, increasing reliance on Swiss-refined bars.
• Any disruption in supply could lead to delays in delivery and price volatility.

The Impact of Trump’s Tariff Policies

Potential Tariffs on Swiss Gold Imports

• Trump’s economic policies have historically included tariffs on key imports, including metals like steel and aluminum.
• If similar tariffs were imposed on Swiss-refined gold, the cost of resizing and importing gold bars into the U.S. could rise significantly.
• This would disrupt supply chains and increase costs for traders and institutions relying on COMEX gold.

Effect on Gold Prices and U.S. Markets

• If tariffs make Swiss-refined gold more expensive, gold prices in the U.S. could rise, affecting investors and institutions holding gold-backed assets.
• Higher import costs may also encourage traders to look for alternative refining locations, adding complexity and delays to the supply chain.
• Market speculation could drive increased volatility in gold futures, leading to price swings that could impact investment strategies.

Pressure on Swiss Refineries

• Already operating at full capacity, Swiss refineries could face additional hurdles if demand shifts or if tariffs reduce their competitive advantage.
• Increased costs might push refiners to prioritize markets other than the U.S., potentially redirecting more gold to Asia or the Middle East.
• This shift could change the balance of power in global gold markets, making other refining hubs more important.

Possible Workarounds and Market Reactions

Alternative Refining Locations

• Other gold refining hubs, such as Canada, the UAE, and Singapore, could take on a bigger role if tariffs disrupt Swiss imports.
• However, Switzerland’s refining infrastructure is unmatched, meaning scaling up elsewhere would take time and require significant investment.

Shift in Trading Patterns

• If resizing gold in Switzerland becomes too expensive, traders may opt to keep London bars in European vaults rather than shipping them to the U.S.
• This could lead to higher demand for 400-ounce gold bars, affecting liquidity in the U.S. gold futures market.
• More direct shipments from gold-producing countries (e.g., Australia, South Africa) to the U.S. could also increase.

Market Uncertainty and Speculation

• Investors may react to potential trade disruptions by hoarding physical gold, further driving up prices.
• Hedge funds and institutional investors may increase speculative trading in gold futures, creating market turbulence.
• If tariffs are implemented, traders will need to reassess hedging strategies to account for supply chain risks.

Conclusion

The London-Switzerland-New York triangular gold trade has long been a crucial part of the global bullion market, ensuring that gold meets the size and purity standards required by different financial hubs. However, Trump’s potential tariff policies could threaten this system, leading to higher gold prices, market volatility, and supply chain disruptions.

If Swiss refining operations become too costly, alternative refining hubs may emerge, but shifting away from Switzerland would not be easy. Traders and investors must closely monitor policy changes and global market trends to navigate these uncertainties.

In a world where economic and political shifts can reshape financial markets overnight, gold’s high-stakes journey from London to New York is a prime example of how global trade and geopolitics are deeply interconnected. Whether the triangular trade holds firm or adapts to a new reality will depend on how governments, investors, and refiners respond to these looming challenges.

Author: Ricardo Goulart