Gold Futures Plunge 1.5% Amid White House Tariff Uncertainty

Gold futures in the United States experienced a decline as traders awaited clarification on trade policies from the White House. The market was initially shaken by a ruling from a U.S. government agency that 100-ounce and 1-kilogram gold bars would be subject to tariffs. This announcement led to significant volatility, with futures prices initially surging to record highs before retreating as the government indicated it would address the "misinformation" regarding the taxation of gold and other specialty products.

The price difference between U.S. and London trading centers narrowed from over 100 dollars per ounce to below 60 dollars per ounce following the government's statement. The U.S. government's policy on tariffs has broad implications for global gold flows and the stability of U.S. futures contracts. In April, the government had exempted gold from tariffs, but traders remain cautious until a clear, long-term policy is established.

Gold prices have risen approximately 30% this year, with most of the gains occurring in the first four months due to geopolitical tensions and trade uncertainties. The market is now closely watching the U.S. inflation data, set to be released on Tuesday, for clues on the Federal Reserve's interest rate policies. Economists predict that the core consumer price index, excluding volatile food and energy prices, will rise by 0.3% in July, up from 0.2% in the previous month.

The Federal Reserve has been resisting pressure from the Trump administration to ease monetary policy, balancing the need to cool the job market with the risk of high inflation. Lower interest rates generally benefit gold, which does not yield interest. As of the latest reports, U.S. gold futures had fallen by 1.5%, while spot gold prices decreased by 0.6% to 3,377.77 dollars per ounce. The dollar index also saw a slight decline, while silver and platinum prices fell, and palladium prices rose marginally.

The global gold market relies on a network of banks, refineries, and logistics companies that facilitate the rapid movement of gold bars to key trading centers. The U.S. ruling implying potential tariffs on gold imports caused significant disruption in this system. Gold is typically viewed as a financial instrument rather than a physical commodity, and the implications of imposing tariffs on it are profound. The global gold bar market is supported by a complex and fragile system of manufacturing and distribution, including major trading centers and the over-the-counter market dominated by London banks.

New York and London vaults alone hold over 1.1 trillion dollars in gold bars, managed by large traders. Swiss refineries play a crucial role in the circulation of gold between these two markets. Industry groups representing these refineries warned that if tariffs are implemented, future gold shipments to the U.S. could become unprofitable, leading to a potential halt in sales from Asian refineries. Observers in the New York market cautioned that tariffs pose a significant threat to the stability of the gold futures market itself.

The price gap between New York and London gold futures reached a record high of over 100 dollars per ounce, but this difference was still insufficient to cover the varying import tax costs under the Trump administration's tariff system. Normally, when the price in New York rises, large gold bars in London are melted and recast into smaller bars suitable for delivery in the U.S. However, the high tariffs on Swiss refineries make this process unprofitable unless the price in New York reaches approximately 4,700 dollars per ounce.

U.S. buyers may turn to suppliers like Canada and Mexico, but these countries also face the threat of high tariffs. Independent refiners, who rely on thin profit margins, warned that excluding them from such an important market could adversely affect global gold trade. Market participants, including investors, traders, banks, and logistics companies, are hoping for a clarification from the White House to stabilize the market. The government has indicated its intention to issue an executive order to address the "misinformation" regarding gold tariffs, but the situation remains fluid as negotiations continue.