Gold Hit By Surprise US Tariffs, Unleashing New Turmoil

(Bloomberg) — A Trump administration ruling that gold bars will be subject to tariffs stunned traders who had assumed they would be exempted, throwing bullion markets into turmoil.

Futures in New York, which are backed by bars shipped from Switzerland and other key trading and refining hubs, surged overnight to a record. They later erased those gains after an official said Friday that the White House intends to issue an executive order to clarify what that person described as misinformation.

Traders, analysts and executives across the industry had understood the bars would be exempt from reciprocal tariffs enacted by President Donald Trump, such as a 39% levy on Swiss goods. But when a gold refiner in Switzerland asked about it, US Customs and Border Protection clarified that one-kilogram and 100-ounce gold bars are subject to the levies, according to a letter from the agency.

The decision, if it remains in place, has sweeping implications for the flow of bullion around the world, and potentially for the smooth functioning of the US futures contract. Gold’s role as a financial asset and global currency sets it apart from other commodities like copper that have been roiled by tariffs, and traders said on Friday that shipments were freezing up in response to the shock news.

“In the long run, the existence of US tariffs on deliverable gold products raises the question on the role of futures trading in the US,” said Joni Teves, a strategist at UBS AG. “Until there is clarity, we expect the gold market and precious metals markets more generally to remain very nervous.”

The US Customs notice was first reported by the Financial Times.

The decision extends a tumultuous year for gold, which has soared to unprecedented levels amid strong buying from central banks and as Trump’s trade war drives haven demand. Earlier this year, physical flows were upended as traders rushed billions of dollars worth of gold and silver into the US as New York prices traded at large premiums in anticipation of potential tariffs. However, that trade came to a crashing halt after the US included gold and silver in its list of exemptions from the tariffs announced in early April.

The industry is still seeking answers to several questions: It’s unclear if the US will also impose tariffs on larger 400-ounce bars that underpin trading in London. There’s also uncertainty about levies for other major gold-producing countries. Speculation is even swirling that the US government issued the ruling in error, and that it could be legally challenged.

The Comex exchange in New York is one of three key global pricing venues, alongside London and Shanghai, where prices are now trading at a big discount.

The chaos has been exacerbated by the absence of a formal announcement or explanation. The CBP’s ruling, which says that one-kilogram and 100-ounce gold bars should be classified under a different category than the one that received the exemption, was not initially made public but has now appeared on the CBPs website.

The decision will have particularly significant implications for refiners in Switzerland, which as the largest gold refining hub plays a particularly crucial role in the smooth functioning of the global market. If prices in London and New York move out of lockstep, Swiss refiners can melt down the larger bars that are traded in the UK capital so they can be delivered against US futures contracts, and vice versa.

“Gold is moved back and forth between central banks and reserves around the world,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase & Co., referring to the bars. “We never, ever thought that it would be hit by a tariff.”

One-kilo gold bars are the most common form traded on Comex, the world’s largest gold futures market, and comprise the bulk of Switzerland’s bullion exports to the US. The country’s gold exports have become a flashpoint in its trade negotiations with the US, after a surge in shipments earlier this year caused the US’s trade deficit with the country to spike.

The levy could add to troubles for Swiss President Karin Keller-Sutter after Trump handed Switzerland the highest country tariff among developed nations. She made an emergency trip to Washington on Thursday aimed at swaying the White House, but came away empty-handed after being denied a meeting with Trump.

Shipments Stop

The Swiss Precious Metals Association said in a statement on Friday the ruling threatens to negatively impact the international flow of physical gold.

“We are particularly concerned about the implications of the tariffs for the gold industry and the physical exchange of gold with the U.S., a long-standing and historical partner for Switzerland,” said Christoph Wild, president of the ASFCMP.

Managers at two major gold refineries in Asia, who did not want to be named discussing sensitive information, said they are pausing shipments to the US until there is more clarity on the tariffs. Several traders and refiners in Switzerland and elsewhere said they are taking similar steps.

Contracts for December delivery jumped to a premium of more than $100 an ounce above the global benchmark for spot prices in London, as investors bet on the tariffs snarling imports. That premium tumbled to about $61 following the official’s comments on the excecutive order.

Imports and exports for all countries are classified by an intricate system of codes that are used to set the scope of any levies.

The CBP letter said the gold bars fall under code 7108.13.5500 rather than the non-tariffed 7108.12.10 as expected. That classifies them as a “semi-manufactured” rather than “unwrought” type of gold, according to the US International Trade Commission’s website.

It’s unclear whether other types of gold bars, such as 400-ounce bullion that’s the most-traded in London, will be subject to tariffs. If not, those could simply be shipped to the US and recast into one-kilogram blocks, said a manager of a major refinery, who declined to be named as they are not authorized to speak publicly.

Such a scenario would still render the CME contract unviable, according to Nikos Kavalis, managing director at consultancy Metals Focus Ltd, since the US only has limited gold refining capacity.

US monthly gold imports surged to a high of 43 tons in January this year, as traders raced to ship metal to the US ahead of any possible tariffs. That compares to average monthly production by gold refiners in the US of 22 tons last year, according to US Geological Survey data.

“The gap between the spot price and the futures price will be prone to issues of capacity. I just don’t see that as being in anyone’s best interest,” he said. “I suspect that this is a misunderstanding or an error on the part of the customs authorities, or if not an error, let’s say a poor assessment. I suspect it’ll be legally challenged or lobbied.”

–With assistance from Yvonne Yue Li.

(Updates with price move, plan to issue executive order in second paragraph, updates premium)

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