Amid Gold Market Turmoil, HSBC Taps Bank of England for GLD Bars
The comments below are an edited and abridged synopsis of an article by Ronan Manly
In March and April, amid global financial turmoil, unprecedented demand for physical gold, refinery closures and a London lockdown, many asked how HSBC London, the vault custodian of the SPDR Gold Trust (GLD), was able to source huge amounts of gold to back enormous inflows into the world’s largest gold-backed exchange-traded fund.
From March 23 (the day of the UK lockdown) to May 12, GLD claims to have accepted a massive inflow of 175 tonnes of gold bars, swelling its holdings from 908 tonnes to 1,083 tonnes.
The timing of these gold inflows was not business-as-usual in the gold market, coinciding as it did with London gold spot liquidity problems (LBMA market-maker bid-ask spreads and COMEX futures—spot gold spreads both reaching nearly $100 on March 24) and a period when no one in the world was able to obtain physical gold in large quantities.
It also came at a time when HSBC had a $200 million 1-day loss due to an “unprecedented widening of the gold exchange-for-physical basis, reflecting Covid-19-related challenges in gold refining and transportation, which affected HSBC’s gold leasing and financing business and other gold hedging activity leading to mark-to-market losses.”
So how did HSBC source so much gold for GLD? Having gold in the right place at the right time? Using a proverbial forklift truck to shunt 173 pallets of gold from one side of a vault to the other during the London lockdown? Or begging and borrowing the gold from anywhere it could find it?
This is a fascinating in-depth look at how the precious metals exchange-traded markets work. If you own shares in an ETF, this is a must-read article. See also Nick Barisheff’s article, “The Illusion of Owning Gold.”