Macro Bites – More Paper Gold Arrives

On Monday, the Intercontinental Exchange (ICE) began London trading of futures contracts covering gold, silver, platinum and palladium. The contracts will settle against the daily physical auction prices operated by ICE in London and range in duration from same-day settlement to six months.  Clearing will take place through ICE’s London operation, which also handles Brent crude oil futures. 

London is the global center for physical bullion trading, with more than $190B of OTC physical gold transactions conducted daily and $1.4T of bullion held in the city. Chris Rhodes, President of ICE Futures Europe, commented, “Derivatives markets generally are there to support the physical market [and] the physical market is in London.  We believe that if you were to enable people to manage their risk in a different way…that could be an attractive prospect, particularly if it’s linked to the auction price.” More paper gold is on the way.  Stay tuned…

President Trump signed an EO on Monday permitting broad on-road use of tax-free, red-dyed diesel to temporarily alleviate surging fuel costs.  The order waives traditional legal restrictions that limit the use of dyed diesel strictly to off-road agricultural and construction equipment.  By temporarily opening highway use to all drivers through the end of the year, the administration aims to lower costs for truckers, farmers, and consumers amid a global diesel supply crunch.

U.K. Business Secretary Jonathan Reynolds is drawing up blueprints for potential tariffs of up to 45% on Chinese EVs.  The development comes amid heavy pressure from the EU, which has been warning the U.K. could be locked out of crucial European supply chains if it remains a low-tariff backdoor for Chinese automotive imports.

Global sovereign fiscal watch:  Treasury Secretary Bessent said the US can achieve 3% growth and restrain spending such that it will “very quickly” begin to alter the trajectory of government borrowing. 

Bloomberg reports German Chancellor Friedrich Merz’s government is at risk as it struggles to agree a package of measures to contain its widening deficit.  And seeking to establish fiscal credibility, French Presidential candidate Marine Le Pen will present plans today to cut government spending by 25B euros annually.  Spanish Prime Minister Pedro Sanchez called an early election for 11/29 after protests around housing and immigration.

In a keynote address to the LBMA Global Precious Metals Conference in Sorrento on Monday, Bundesbank President Joachim Nagel explored how an increasingly fragmented geopolitical landscape is shaping the global economy, monetary policy and the role of gold in central bank reserves.  Nagel traced the changing role of gold over the past 75 years through three phases: “anchor, retreat and return.” Under the Bretton Woods system, gold served as the foundation of the international monetary order, representing 70% of global central bank reserves in 1950.

Nagel noted that following the collapse of Bretton Woods, gold gradually lost prominence as central banks accumulated foreign exchange reserves and government securities instead.  However, the trend began to reverse after the GFC, and as interest rates fell and geopolitical risks increased, central banks have returned as net gold buyers.