'Disorderly': Why gold prices are being pushed to record highs

An institutional scramble to move physical gold from the UK to US has created a "disorderly" gold market in London as traders wait weeks to withdraw from the Bank of England, a key gatekeeper of the precious metal.

The gold exodus triggered by concerns US President Donald Trump will slap tariffs on imports has extended the precious metal's post-pandemic bull run and pushed it 4.2% higher over the past week to US$2,869/oz. 

The move has pushed the valuations of local gold miners higher so far in 2025, with big hitters Northern Star (ASX: NST) and Newmont (ASX: NEM) advancing 17% and 18%, respectively. 

Gold industry veteran and British-Australian fund manager, David Baker, of Baker Steele investment group slammed the UK's physical gold market as suddenly looking "disorderly" and warned of other potential problems ahead. 

"Clearly gold is cheap relative to the money supply and stock market," he said. "And I think there's a realisation of this as people scramble for physical gold."

"But this also raises questions as to how many [paper} claims there are on each ounce of gold, silver and platinum. We know from experience that bullion dealers and bank charlatans have been caught manipulating prices to their own advantage, so anything is possible."

According to the London Bullion Market Association (LBMA), more than 8,000 tonnes of gold and 30,000 tonnes of silver are held in London's vaults between the Bank of England, HSBC, ICBC, Standard Bank and J.P. Morgan. Around 393 tonnes rushed from London to New York since Trump's election.  

"There are also question marks on the LBMA," added Mr Baker. "How can they take up to eight weeks to settle a contract - come on - this is disorderly."

In the US, the Trumpian gold rush pushed futures contract levels to a record monthly high in February on the benchmark US COMEX exchange for commodities. 

Mr Baker said the record-breaking trading month - only topped by June 2020 at the peak of central banks' money printing response to COVID-19 lockdowns - likely reflects a mix of tariff panic and investors anticipating gold moving higher over the medium term. 

Gold ETFs in spotlight

Other industry players dismissed concerns that a larger panic could snowball into a greater demand rush for physical gold and roil the estimated $US224 billion market for paper exposure to gold dominated by giant exchange traded fund (ETF) providers.

David Tuckwell, a leading Sydney-based ETF gold industry expert and consultant said popular ETF providers like Global X, BetaShares, VanEck and BlackRock must back every investment dollar they receive with the equivalent amount of physical gold stored in London's vaults. 

"Some of these ETF businesses easily have more than $US10 billion in gold vaulted, but only ever get one or two requests for physical delivery out of tens of thousands of investors," he said. "It's very expensive to move gold bars [due to security, transport and insurance costs] and risky as you could lose a [400 ounce] bar that's worth more than $US1.5 million."

Every time an investor buys paper units in a fund on an exchange the cash paid would eventually find its way into the equivalent amount of physical gold, Mr Tuckwell said. 

"The invisible plumbing is the LBMA custodians. The three main ones are HSBC, JP Morgan and ICBC out of China. Every time say $500 million goes into a gold ETF the LBMA custodian initially receives the cash and then marks it as unallocated bullion. 

Then they convert that unallocated bullion [credit] into allocated gold [debit], so every ETF unit has physical ounces held in the ETF behind it. The balance sheet gold is essentially converted into physical gold."

The banking custodians will generally allocate the gold off existing physical holdings, or go into physical trading hubs in London, Dubai, Hong Kong, and New York to buy the gold off refiners. 

"But there's not a lot of optics on that from within the ETF industry itself," said Mr Tuckwell. 

The consultant and heavy investor in gold ETFs encouraged investors to shun the miners as value traps in favour of products that simply track the gold price. 

"These miners are now uninvestable," he claimed. "The gold mining sector used to trade on a premium price-to-book ratio of two-and-a-half or three. But after the ETF industry got going in 2003 the [miners'] price-to-book ratios permanently collapsed to around one to one-and-a-half. And these miners have underperformed spot gold since. 

So now, the more sophisticated gold investors no longer invest in gold miners' equity. They invest in royalties for a share of profits, rather than just investing in the capital stack."

To the frustration of local investors, ASX-listed gold miners such as Regis Resources and Gold Road have underperformed the market as valuation compressions, alongside rising labour and energy costs offset any benefit from the soaring spot gold price.