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There have been many media reports in the past few weeks about the so-called ‘gold shortage’ in London. This article provides some context and explains why The Royal Mint’s unique vaulting proposition could offer reassurance to investors.
What’s happening, and why?
Since President Trump won the US elections in November 2024, investors have been attempting to assess the impact of potential tariffs on their portfolios and the wider global economy. The prospect of blanket tariffs, from which precious metals may not be exempt, prompted an increase in demand for physical gold to be held within the borders of the United States. One mechanism by which this is being achieved is via the New York COMEX market, which has its own network of approved vaults based in America.
As one might expect, increased demand against a finite supply led to increased premiums on the COMEX market – gold trading above spot. This created an arbitrage opportunity where gold in New York could be sold at a higher price than gold in London. Hence the rush to move metal before any potential tariffs come into effect.
Large movements of gold can create logistical bottlenecks:
- Gold bars are heavy (c.12.5kg), and available gold bars may be stored among bars of gold that needs to stay in the vault. So, there’s a challenge in physically moving large numbers of bars and preparing them for shipment.
- The companies charged with collecting the bullion may wish to limit their risk (of loss or theft) by limiting the amount of gold they’re willing to take in one vehicle, and how many vehicles they’re willing to send in one day. This may add to delays.
- Gold usually travels by aeroplane, so there may be a queue in waiting for flights to the correct destination that are able to carry the metal.
- As COMEX requires 100oz and 1kg bars, and much of the gold leaving London is likely to be in 400oz form, there is a job for refiners (often in Europe) in melting and recasting the gold into the correct format. These refiners will have a maximum capacity and pace that may cause further delays.
- When the gold finally reaches New York, some of the transport-related delays may be repeated, and vaults may need to conduct a weighing and assaying process before the gold becomes available to be used.
As a result of the above, the delivery timelines from London reportedly increased from days to weeks, fuelling speculation that there is a shortage.
The London Bullion Market Association (LBMA) publish data showing the volume of gold and silver held within the loco-London vaults. Comparing the latest data (January 2025) with the month before the US election (October 2024), we can see that gold stocks have decreased by almost 3%. While this may not sound like a lot, it is worth remembering that a good deal of the gold in the vaults is not available to the wider market (e.g. it belongs to ETFs or central banks unwilling to sell or lease out their metal). The LBMA have also issued a statement that they are monitoring the situation alongside the CME Group and US authorities. They point out that while COMEX premiums at levels we’ve recently seen are unusual, similar situations do occur more frequently in other markets such as China and India where tax and regulatory factors can have an impact.
After an initial delay, the US has now applied 25% tariffs to goods entering from Mexico and Canada, and 20% tariffs to goods imported from China. More tariffs may follow with Trump fuelling speculation that the European Union could also face tariffs on their exports. This uncertainty, combined with geopolitical and economic factors, is pushing gold to new highs.
Potential Impacts for Retail Buyers
While much of the commentary and speculation has focused on COMEX premiums and London vault stocks, the situation has other implications for gold buyers. Gold leasing rates surged as entities holding gold saw increased demand to lease out their gold to help satiate the US’s increased appetite for bullion. This has the potential to drive up costs for lessees who use gold leases to fund their inventories (e.g. coin wholesalers or jewellery manufacturers). If higher lease rates persist, it is possible that manufacturers and wholesalers operating on relatively thin margins could be forced to pass on all or some of the increased costs to consumers in the form of bullion premiums or jewellery ‘making charges’.
In addition, bottlenecks at refineries could have a knock-on impact on the availability of new products. Currently, many refiners will be busily converting 400oz bars into smaller bars for the COMEX market. However, much of the process for casting large bars and making blanks for smaller bars or coins is different, so subject to a refiner’s capacity to source and handle raw material at the very start of the process, the knock-on effect for retail buyers should be limited.
Does This Affect My Vaulted Holdings?
No, the safety and security of any metal you hold in our vault is not impacted.
The Royal Mint has its own purpose-built, high-security vault on its site in South Wales. This vault does not form a part of the loco-London system and is not used to warehouse any metal on behalf of COMEX, the London clearing system, or any central bank. All metal owned by customers is owned on an allocated or pool-allocated basis. No vaulted metal that has been sold as DigiGold, coins and bars, or via the ETC sits on The Royal Mint’s balance sheet. No metal held in our vault by customers is hypothecated, leveraged or otherwise used by The Royal Mint or any other party.
Physical Coins and Bars
Coins and bars owned by customers and stored with us are held on a segregated and fully allocated basis in our on-site vault. Customers have full legal ownership of these specific, individual products and The Royal Mint has no right or claim over these products, except in the case of unpaid fees, as per our terms and conditions. We do not lend against, lease out or leverage these products in any way. While storing with us, all coins and bars belonging to customers are guarded 24 hours a day, 7 days a week, 365 days a year, and are fully insured. You may request delivery of your items at any time.
DigiGold (100% Physically Backed)
Our digital gold, digital silver, digital platinum and Little Treasures products are stored entirely within our vault in South Wales. These bars are owned by customers on a pool allocated basis and The Royal Mint has no right or claim over the digital ounces owned by customers. We do not lend against, lease out or leverage this metal in any way. While storing with us, all bars that constitute our digital products are guarded 24 hours a day, 7 days a week, 365 days a year, and are fully insured. The full list of bars that currently make up these products can be found here.
Gold ETCs
The Royal Mint’s suite of gold ETCs (issued by HANetf) use a physical replication method – that is to say that the Issuer (HANetf ETC Securities plc) holds physical gold bars rather than derivative products. The gold backing The Royal Mint’s suite of gold ETCs is allocated and held in line with the terms set out in the Issuer’s prospectus. For transparency and reassurance, The Royal Mint provides a bar list identifying the individual bars held by the Issuer for the ETCs. These are published on HANetf’s website here.
To ensure the smooth operation and liquidity of the product, it is usually necessary to maintain a small gold balance in London. The vast majority of gold bars that back the product are stored in The Royal Mint’s own vault in South Wales. Custody of gold bars outside of vaults belonging to commercial banks in London is unusual in the ETC market. We believe this feature gives investors more choice around mitigating exposure to systemic risk, custody location, and custodian.
In addition, it is possible for most investors to redeem metal securities for physical gold bullion from The Royal Mint. In this instance, investors can select from a range of bars or coins they wish to receive, which may be placed in separate storage in The Royal Mint’s vault or delivered to the investor’s address.
