The U.S. has imposed tariffs on large gold bars weighing 1 kg and 100 oz, targeting Switzerland and London. These tariffs impact the Swiss gold bars accepted by COMEX for delivery, affecting the gold market’s structure and causing challenges for London’s bullion banking system.
Supply Restrictions And Basel III Pressure
This measure restricts the supply that can be delivered, increasing pressure from Basel III for banks to hold more physical gold. It reduces the LBMA’s capability to rehypothecate bars and challenges Switzerland’s refining dominance, impacting London, while enhancing COMEX’s influence in global gold pricing.
In London’s unallocated gold market, rehypothecation involves reusing the same gold bar as collateral multiple times. The tariffs make it more difficult to acquire bars in the required formats, which are essential for settlements, thus lowering leverage and liquidity in London’s market.
The London Bullion Market Association (LBMA) regulates this market, setting standards for gold and silver bars required for international trade. It manages the clearing system for most wholesale gold trades, allowing members, including major banks and traders, to engage in highly leveraged transactions. However, its capacity to rehypothecate and maintain liquidity is diminished due to the reduced availability of deliverable bars.
The new U.S. tariffs on specific gold bars are actively squeezing the market’s plumbing. We’ve seen COMEX gold futures rally past $2,550 an ounce as a direct result. This move is creating a significant dislocation between the London and New York markets.
Tariffs And Market Dynamics
For derivative traders, this suggests a bullish stance in the coming weeks. The tariffs make it costly for shorts to deliver physical metal, forcing many to buy back their positions at higher prices. Open interest in the front-month contract has already dropped by 15% in the last two weeks, signaling that shorts are closing out.
We are watching the widening premium of COMEX futures over the London spot price, which has recently exceeded $50. This spread reflects the added cost and difficulty of sourcing and shipping tariff-free gold to New York for delivery. Trading this spread could be a viable strategy as long as the logistical friction remains.
The pressure is visible in the physical market data. COMEX registered gold inventories have seen a net withdrawal of nearly 1.5 million ounces since late July 2025. This drain on deliverable supply puts longs in a powerful position to dictate terms.
This kind of structural stress is causing a spike in implied volatility. The CBOE Gold Volatility Index (GVZ) has surged to its highest point since the banking stress we witnessed back in early 2023. Traders could consider buying call options to gain upside exposure while limiting downside risk.
This situation is starting to echo the market dislocation of March 2020, when pandemic-related flight cancellations broke the physical arbitrage link. During that period, the COMEX premium exploded, rewarding those who were long futures. We could be seeing the early stages of a similar, tariff-induced event.
