The news from earlier: Financial Times: US hits one-kilo gold bars with tariffs
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The U.S. is now imposing tariffs on certain large gold bars (1 kg and 100 oz).
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These bars are a common form used in wholesale bullion trading, including in “EFP” transactions.
UBS is warning that these U.S. tariffs on large gold bars could spark disruption in funding markets, as the higher costs prompt a mass closeout of short exchange-for-physical (EFP) positions. The unwinding of these trades, which are typically settled in London, would trigger a sudden demand for cash and liquidity in the city’s bullion market, potentially tightening funding conditions.
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More detail :
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EFP stands for Exchange for Physical.
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It’s a transaction where a futures position is swapped for the actual physical commodity (or vice versa).
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In gold markets, traders often run “short EFP” positions — meaning they’ve sold futures but are committed to delivering physical gold later.
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Many of these trades are settled in London, the world’s main hub for wholesale gold trading and vault storage.
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Because the U.S. tariffs now hit large gold bars, a lot of traders holding these short EFP positions may decide to close them out instead of delivering physical gold into the U.S. (because doing so is now more expensive).
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Closing out these positions means they need to buy back futures and unwind the physical delivery side.
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That unwinding process will create a sudden need for cash and liquidity in London’s gold market, because the physical leg of these trades — which is financed — has to be funded or replaced.
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In short: tariffs make delivering gold into the U.S. pricier, so many traders will pull back and close their positions, and that mass closure creates funding stress in the London market.
This article was written by Eamonn Sheridan at investinglive.com.