EXCLUSIVE – Shortage of large gold bars leads to rare London premiums

Jan 15, 2014 - 3:52 PM GMT

London 15/01/2014 – The London bullion market has seen intermittent shortages of 400-ounce bars, traders in the City told FastMarkets, pushing premiums for physical delivery for these large bars as high as 50 cents.

This shortage may have been driven by several factors, including a scramble for physical delivered material after the end of the year and reduced availability due to good delivery bars flowing from London to the Far East, they suggested.

“There is a shortage of big bars, especially good-delivery 400-ounce bars,” Bernard Dahdah at Natixis said. “One part of the problem is that large quantities of these bars that have come from ETFs, have now been moved to be re-refined into three-nines bars of smaller sizes and are therefore no longer available to the London market.”

Other traders, who prefer not to be named, confirmed the current shortage but another one was more circumspect.

“Perhaps ‘shortage’ is too a strong a word,” he said. “There is gold available in London and the forward curves are not deep into backwardation, which one would normally expect to see if it was the case.”

Indeed, the gold backwardation has narrowed this week, with only one-month gold still in backwardation after stretching as far out as three months last week.

“But the question has got to be asked: is there availability of allocated or non-allocated material? I believe we are seeing people starting to want physical delivery and paying a premium to do so,” the trader added.

(Editing by Mark Shaw)