Breakingviews - Gold tariff saga fits with trader-unfriendly trend
Applying the 39% tariff on U.S. imports of Swiss goods to 1, opens new tab kilogram bricks of gold, opens new tab never made much sense. The U.S. futures contract traded on the New York Commodity Exchange (Comex) is a key metric for investors to hedge exposure to the London spot price of the metal. Making that more expensive might have therefore encouraged this to happen elsewhere – the spread of the Comex contract over that of London jumped to over $100 an ounce between last Tuesday and last Friday.
On the face of it, the kerfuffle seems to have been a labelling oversight rather than an intentional slap. Either way, it's far from the first commodities upheaval this year. Late last month Trump unveiled a 50% tariff on copper pipes and wiring but exempted less refined versions of the red metal, prompting Comex copper prices to slump 20%. Earlier this year, huge amounts of both copper and gold flowed into the U.S. ahead of the assumed tariffs, only for Trump to change his mind on how they would be implemented.
Normally, large traders like $47 billion Glencore (GLEN.L), opens new tab and privately held Trafigura and Vitol like the volatility created by market dislocations. Amid supply chain upheavals during the pandemic and Russia's invasion of Ukraine in 2022, they could use their global logistical networks to exploit price arbitrages around the world. That year, for instance, Vitol's turnover nearly doubled, opens new tab to over $500 billion.
Glencore had a decent first half trading metals. But operating profit in its energy and steelmaking coal division dropped, opens new tab from $326 million to $40 million year-on-year. Among other challenges, boss Gary Nagle pointedly commented that a situation in which 'tariffs are being announced on Monday, changing on Tuesday, and being scrapped on Wednesday' did not necessarily provide the 'structural arbitrage opportunities' that traders find lucrative.
Unfortunately, the recent copper and gold soap operas suggest that this may be what they are stuck with. If so, it may create a situation where volatility remains high, but activity subsides while participants sit on the sidelines. Even if the gold market is breathing more easily, commodities traders in general probably aren't.
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