Gold hit by surprise US tariffs, unleashing new turmoil

A US move to put tariffs on imports of gold bars is unleashing fresh turmoil in the bullion market, with prices spiking in New York as dealers brace for a major reordering of global trade flows.

US Customs and Border Protection has clarified that one-kilogram and 100-ounce gold bars are subject to reciprocal tariffs enacted by President Donald Trump, and are not exempted as the industry had initially understood, according to a letter from the agency seen by Bloomberg. The ruling was first reported by the Financial Times. 

Gold futures in New York — which are backed by those forms of bullion — surged to a record high, as traders, analysts and executives across the industry were left reeling. The move threatens to disrupt shipments from Switzerland and other key trading and refining hubs including Hong Kong and London, where prices are now trading at a big discount to the US market. 

Traders and analysts are scrambling to understand the full scope and consequences of the ruling, including whether the CBP would treat larger 400-ounce bars that underpin trading in London in the same way, and what the levies for major gold-producing countries will be. The potential market consequences are so profound that some questioned whether the dramatic change could be an error on the CBP’s part, and suggested it may be subject to legal challenges. 

“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 ruling came in response to an inquiry from a refiner in Switzerland, which 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.

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.

Bullion traders had expected gold bars of one kilogram and 100 ounces qualified for an exemption from Trump’s reciprocal tariffs, including the shock 39% country rate he put on Switzerland. But in the letter sent on July 31 the CBP clarified that those products are classified under customs codes covering semi-processed goods that are subject to levies.

“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.”

The Trump administration has delivered many shocks as it builds a complex patchwork of different US import tariffs launched for varying reasons at different rates. Last month, US copper futures crashed after the White House unexpectedly spared refined metal — the most widely-traded product — from a 50% levy. 

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.

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. 

Dramatic change

The latest ruction adds to a tumultuous year for gold, and drove a spike in the premium of gold futures in New York over international prices on Friday. 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.

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.

“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.”

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