The London Bullion Market Association and several major gold-trading banks have asked U.S. exchange operator CME to allow gold bars in London to be used to settle its contracts to ease disruption to trading, Reuters reports.
The gap between gold futures on the CME’s Comex exchange in New York widened above London spot prices by as much as $70/oz. – or 4% – today; the two usually remain within a few dollars of each other, and the gap skewed today’s trading on the London market.
Traders worry that air travel restrictions and precious metal refinery closures will slow shipments of bullion to the U.S. to meet contractual requirements.
London is a key gold storage center, but it uses 400-oz. bars which must be melted down and recast as 100-oz. bars to be accepted by Comex, and the LBMA and the bank executives want CME to allow 400-oz. bars to be used to settle Comex contracts.
The move would allow the gold to remain in vaults in London while ownership is transferred; if this happened, spot and futures prices supposedly would converge and help markets trade normally.