From Boom to Bust: Trump's New Tariffs Just Crushed Precious Metal Arbitrage Trade
1min read Following Trump's Wednesday announcement that precious metals would be excluded from his sweeping tariff measures, a months-long arbitrage frenzy—which had funneled tens of billions of dollars worth of gold and silver into the U.S.—came to an abrupt halt.
For months, New York futures prices had traded at a steep premium to global benchmarks as traders priced at the risk of potential tariffs on precious metals. This price gap incentivized dealers to ship massive quantities of gold and silver into the U.S.
However, after the U.S. exempted gold, silver, platinum, and palladium from tariffs, the premium on american precious metals plummeted on Thursday. The spread between COMEX near-month gold futures and London spot prices collapsed from over $62 per ounce to just $23. Similarly, the silver spread-known among traders as the Exchange for Physical- plunged from over $1 per ounce to a 24 cents...
Yesterday's announcement effectively puts an end to the massive flow of precious metals into the US over the last few months as the EFPs collapse, said Anant Jatia, Chief Investment Officer of greenland Investment Management, a hedge fund specializing in commodity arbitrage.
While the U.S. precious metals market never fully priced in the possibility of major tariffs, even the risk of tariffs had been enough to force traders to cover short positions in U.S. markets, sustaining the price gap. This, in turn, drove a surge in physical metal shipments to the U.S.
American precious metals inventories have soared to record highs, with gold holdings rising by 26.5 million ounces and silver by 174.6 million ounces since late November—equivalent to over $80 billion worth of inflows at current prices.
The influx of gold contributed to a record U.S. trade deficit in January, prompting economists to exclude gold from their calculations. In February and March, inflows likely remained elevated, and with arbitrage trades still active, some shipments may have continued into April.
As of now, COMEX gold futures were down more than 2% at $3097 per ounce.
Ask Aime: What does the U.S. exempting precious metals from tariffs mean for the global markets and commodity arbitrage?
