UBS has warned that U.S. tariffs on giant gold bars might spark disruption

The information from earlier: Monetary Instances: US hits one-kilo gold bars with tariffs

• The U.S. is now imposing tariffs on sure giant gold bars (1 kg and 100 oz).

• These bars are a standard kind utilized in wholesale bullion buying and selling, together with in “EFP” transactions.

UBS is warning that these U.S. tariffs on giant gold bars might spark disruption in funding markets, as the upper prices immediate a mass closeout of quick exchange-for-physical (EFP) positions. The unwinding of those trades, that are sometimes settled in London, would set off a sudden demand for money and liquidity within the metropolis’s bullion market, doubtlessly tightening funding situations.

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Extra element :

• EFP stands for Alternate for Bodily.

• It’s a transaction the place a futures place is swapped for the precise bodily commodity (or vice versa).

• In gold markets, merchants usually run “quick EFP” positions — which means they’ve offered futures however are dedicated to delivering bodily gold later.

• Many of those trades are settled in London, the world’s essential hub for wholesale gold buying and selling and vault storage.

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• As a result of the U.S. tariffs now hit giant gold bars, a variety of merchants holding these quick EFP positions could resolve to shut them out as an alternative of delivering bodily gold into the U.S. (as a result of doing so is now costlier).

• Closing out these positions means they should purchase again futures and unwind the bodily supply facet.

• That unwinding course of will create a sudden want for money and liquidity in London’s gold market, as a result of the bodily leg of those trades — which is financed — needs to be funded or changed.

• Briefly: tariffs make delivering gold into the U.S. pricier, so many merchants will pull again and shut their positions, and that mass closure creates funding stress within the London market.

This text was written by Aaron Cutchburt at investinglive.com.