(Bloomberg) — The global gold market relies on a network of banks, refineries and couriers that can fly bullion between key trading hubs at a moment’s notice in pursuit of the highest prices. On Friday, a shock US ruling suggesting that the metal would be subject to tariffs plunged that system into chaos.
Most Read from Bloomberg
The apparent decision by the US Customs and Border Protection agency — announced privately in a letter to a Swiss refiner on July 31 and made public Friday — sent gold futures in New York soaring to a record, as insiders warned the tariffs would have dire consequences for the market. Then, just as quickly, prices tumbled after the Trump administration suggested imports of gold bars wouldn’t face tariffs after all.
It was the latest example of President Donald Trump’s trade war triggering wild gyrations in markets, for equities, raw materials and finished products alike.
Gold bullion is typically treated more as a financial instrument than a physical product, and slapping tariffs on it would have such profound consequences that many traders argued Friday the ruling had to be a mistake.
“The problem was that the government didn’t look outside of the question of the physical format and did not take into consideration that this widget was actually gold,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase & Co.
A complex and sometimes fragile system for making and moving gold bars underpins the global market for the metal, including the futures exchanges in New York and Shanghai as well as a huge over-the-counter market overseen by London banks. Key consumer hubs in Mumbai, Dubai and Hong Kong rely on it as well.
There is more than $1.1 trillion in gold bars stored in vaults to underpin trading in New York and London alone, with much of it stored by major dealers including JPMorgan and HSBC Holdings Plc.
Refineries in Switzerland play a crucial role in facilitating the flow of gold between London and New York. A trade group representing them said Friday that the apparent tariffs would render any future US shipments unviable. Asian refineries put a temporary halt on US-bound sales. At the epicenter of the turmoil in New York, observers warned that tariffs would pose a major threat to the gold futures market itself.
Story Continues
