EFP 'Panic' Leaves Gold and Silver Unmoved by US Inflation Data
Tuesday, 1/14/2025 14:54
GOLD and SILVER PRICES were little moved Tuesday by softer than expected US inflation data, holding onto yesterday's losses and also staying unmoved by wild swings in the EFP contract for exchanging precious-metal derivatives for physical bullion ahead of Donald Trump returning to the White House next Monday.
China on Monday reported a new record trade surplus for 2024, totalling near $1 trillion and boosted in December by Chinese manufacturers
rushing to fill US orders ahead of Trump 2.0.
Vowing heavy US import tariffs to reduce America's massive trade deficit, Trump has also spurred a surge in EFP prices and a rush to ship physical bullion into CME-approved Comex warehouses before January 20th.
"Historically, tariffs
haven't been imposed on precious metals," explains Daniel Ghali, senior commodity strategist of Canadian brokerage TD Securities.
"But if they were, then traders holding short positions [in US derivatives contracts] to hedge metal that they actually hold somewhere else in the world would be subject to a substantial loss. So they're bringing metal into the US" to cover that risk as the cost of 'exchange for physical' surges.
"The disorder in the EFP matches or exceeds the major dislocation seen in 2020," says strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp, pointing to when the
Covid pandemic lockdowns spurred a rush to move gold from London – where privately-owned stockpiles are typically stored – to New York, where
gold futures and options contracts for hedging those stockpiles are typically settled.
Since Trump's team first proposed universal tariffs on major silver suppliers Mexico and Canada this time last month, says Rhona O'Connell at brokerage StoneX, silver inventories in Comex warehouses have swollen by 5%, with shipments of bullion taking the total to the equivalent of 2/5ths of overall open interest.
"Silver is [flowing in] at the same rate as Covid," says Shiels at MKS, while fellow industrial-precious metal "platinum is currently flowing into CME at a faster rate than 2020" but palladium inventories are currently unmoved.
"But surprisingly, since there is technically no shortage of gold in London or global stocks, gold inflows now have been a lot slower vs Covid."
Moreover, says Shiels, "mining/equity markets are not reflecting the tariff uncertainty [because] US gold producer shares haven’t markedly traded higher or Mexican silver producer names lower to price in that uncertainty.
"That is testament to our market's over-reaction and lack of liquidity and information. There is not much communication/information/chatter on the EFP movement, which in itself is exacerbating the panic."
Gold bullion in London today cut an earlier rally to trade at $2661 per Troy ounce, just $5 above Monday's 2-session low, after 'core' inflation in US Producer Prices came in at 3.5% per year for December, only 1 tick faster than November's reading.
Silver meantime held near yesterday's 1-week low, trading in London's bullion market at $29.70 as New York opened for business.
Because EFP contracts are struck directly between the buyer and seller, there is no widely published or reference price. "Super rough estimates" from Shiels at MKS for the EFP's recent highs range from $60 per ounce for spot London versus the CME's April Comex future, $1.10 per ounce for silver, $30 for platinum and $15 for palladium.
"All are multiples above fair value, but the intraday moves/volatility in the EFP [have been] extraordinary and unheard of, highlighting the panic.
"What is also extraordinary is that the EFP and [Comex] futures remained bid in the face of
index rebalancing/selling (which is ongoing since last week) and
the blockbuster NFP jobs report (also enticing in sellers, largely algos)."
The flood of silver from London to New York is "the biggest story in commodities right now" says Ghali at TD, forecasting an end-2025 price of $40 per ounce as the drawdown of inventories in global hub London exacerbates silver's widening deficit of supply versus demand.
"There is no doubt that the market is going into a steepening deficit," agrees O'Connell at StoneX, "and supply is not necessarily flexible enough to feed that demand [because] only 23% of silver supply comes from primary mine production."
But "it's really important to bear in mind that silver is notoriously vulnerable to 'conspiracy theories' and attempted squeezes," O'Connell cautions.
"While this has not necessarily affected spot prices," O'Connell goes on, "it has resulted in wide volatility in the EFPs, especially last Friday – because that was 10 days ahead of Trump's inauguration, [matching] how long it takes to get metal from London into New York warehouses."
"It's hard to see in flat prices," agrees Ghali at TD, "but over the past month there's been huge disruption in precious metals markets."
"It's extremely improbable there are universal tariff on all countries," says Shiels at MKS, but "it's also very likely there is no clarity on D-Day [Jan 20th] or for some time, which leads to continued tariff uncertainty."
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