Trump's Tariffs Do Not Stop at Swiss Gold Bars
Swiss gold smelters have done good business in recent quarters by shifting gold stocks to the US. According to a media report, however, this is now likely to come to an end.
The reason for the thick order books of Swiss gold smelters was the price difference between US gold futures and the London spot price for the precious metal. This arbitrage opportunity was exploited by shifting gold reserves to the US. However, this required the 12.5-kilogram bars commonly used in Europe to be remelted into the one-kilogram bars commonly used in the US.
In this triangular trade, Switzerland serves as a hub where the brick-sized bars from London are remelted into small bars about the size of a smartphone.
Swiss gold refineries were thus able to benefit from an unusually long-lasting boom. However, these quantities appeared as exports in the trade balance with the US. The fact that the gold initially came to Switzerland as an import is irrelevant in US calculations.
High Commodity Value with Low Added Value in Switzerland
If a report in the «Financial Times» proves to be true, the introduction of punitive tariffs against Switzerland is likely to bring this low-margin business to a halt for the time being.
According to this, the US has imposed 39 percent tariffs on Swiss goods, including imports of 1-kilogram gold bars. This is stated in a «ruling letter» from the US Customs and Border Protection (CBP) dated July 31. The gold bars are listed under a customs code that provides for the levies.
The industry had expected 1-kilogram gold bars to be exempt from the «Trump tariffs». They are the most frequently traded on Comex, the world's largest gold futures market, and account for the majority of Swiss gold bar exports to the US.
Gold Futures Rise
In response to the «FT» report, gold futures on Comex for December rose to a daily high of $3,534 per troy ounce on Friday.
The tariff decision would deal «another blow» to Swiss gold trading with the US, Christoph Wild, president of the Swiss Precious Metals Dealers and Processors Association, told the newspaper. The gold tariffs would make it difficult to meet demand for the precious metal.
«The prevailing opinion was that precious metals melted down by Swiss refineries and exported to the US could be shipped duty-free,» Wild continued. «However, the tariff classification for various gold products is not always precise.»
12-Month Exports
Switzerland exported gold worth $61.5 billion to the US in the twelve months to June.
«From an economic perspective, the US government should recognize that these factors are largely temporary in nature and keep them out of its trade negotiations,» write the experts at Lombard Odier in a commentary on the customs issue.
However, the Trump administration is only looking at the total number of imports from Switzerland.
