Why dealers are flying gold bars by plane from London to New York

If you landed on a flight from Europe to JFK recently, you might have been an unwitting participant in a high-stakes, high-altitude trade by gold dealers at JPMorgan Chase.

President Trump’s threatened tariffs on Europe have thrown precious-metal markets into disarray. Gold prices have been driven to record highs, and a yawning gap has opened in the value of the yellow metal in its two trading hubs, New York and London.

Gold is, for the moment, worth substantially more in Manhattan than in the U.K. capital, sparking the biggest trans-Atlantic movement of physical bars in years. Traders at big banks are racing to yank gold from vaults deep below London’s medieval streets and from Swiss gold refineries and ferry them across the ocean.

The cheapest way to transport such a valuable commodity safely: the cargo hold of commercial planes.

Gold futures in New York have risen 11% this year, closing Wednesday at $2,909 a troy ounce, and some analysts project they could soon hit $3,000 a troy ounce for the first time. Many investors view gold as a haven at times of heightened risk. In London, though, prices per troy ounce have been about $20 lower since early December—an unusually deep discount, which traders said reflects potential tariffs at the U.S. border.

A handful of banks with access to huge supplies of gold—including JPMorgan and HSBC Holdings—are in pole position to cash in on the disconnect, according to market participants and analysts.

Others are looking to get in on the action. Citigroup, already a significant player in gold, is aiming to join JPMorgan and HSBC in the small club of banks allowed to stash clients’ bars on deposit in London vaults, said people familiar with the deliberations.

But some banks and hedge funds might take a knock if they can’t quickly get hold of gold with which to bail out of loss-making trades in New York. In a sign of the strain on some market players, the interest rate to borrow gold has rocketed.

One big reason: The stampede to jet gold to New York led to a weekslong queue, as the Brits call it, to withdraw bars from the Bank of England’s subterranean stocks. Officials tasked with monitoring London’s bullion market have fielded anxious calls from bankers asking to short-circuit the system, said people familiar with the matter. The Bank of England responded that they have to wait for their turns.

The gold rush shows how Trump’s steps to reshape world trade are rippling through international markets. He recently said Europe’s trade stance versus the U.S. was an atrocity, and promised punishing levies on the region. While it isn’t clear whether any tariffs would affect gold directly, the price spread widened after Trump unveiled broad-based aluminum and steel tariffs this week.

Manufacturers that use gold are losing money and struggling to price their products as a result, said Wade Brennan, chief executive of Kilo Capital, a firm that lends to commodities companies.

“The situation is very profitable in the short term for some players—the clearing banks and refiners in particular," Brennan said.

The Bank of England maintains a hoard of bullion under its London headquarters.

The flood of gold to New York began soon after Trump’s election victory. In normal times, most traders get out of derivatives that set the future price of gold before physical bars change hands.

Investors, banks, miners and jewelers trade the contracts on New York’s Comex exchange, one of the gold world’s twin axes. The U.K., meanwhile, has been the go-to place to buy physical bullion for centuries. The two markets mostly move in lockstep. When they don’t, traders know they can fly gold to wherever prices are higher.

Banks run big offsetting positions, owning gold bars in London, lending them out to earn a return and hedging the risk that prices fall by selling futures in New York. JPMorgan and HSBC, which clear gold transactions and store bullion for other banks in London, are the biggest players in this trans-Atlantic market.

The trade appears almost risk-free as long as prices on both sides of the Atlantic are close to each other. But when prices on the Comex surged above those in London late last year, baking in possible tariffs, contracts that the banks had sold in New York were suddenly underwater.

Adding to the urgency, large losses—even on paper—would require banks to set aside additional capital on their commodities desks, crimping their ability to operate profitably for years.

Banks could close the trade by buying futures in New York, but such a move would mean crystallizing those losses. Another alternative: flying the physical gold they owned in London to New York and delivering it to the futures contracts’ owners instead, said Robert Gottlieb, a retired gold-trading executive whose LinkedIn posts on the disarray have become required reading in the market.

Once they covered their open positions, the banks had a chance to win big. How? Lock in higher prices in New York through futures and ship even more gold. JPMorgan alone said it planned to deliver $4 billion of gold this month, according to Comex filings.

How much of the shipment was to cut losses and how much was to make money couldn’t be learned.

Even for the likes of JPMorgan, sending gold to New York isn’t simple.

Security firms shuttle bullion to the airport in London in high-strength vans. Comex contracts require a different size of bar, so traders need to send gold to Swiss refiners to recast it before flying on to the U.S. Sometimes, they cut out the first European leg by handing the refiner gold in London in exchange for the right size of bar, or flying bullion in from Australia instead.

HSBC is one of a handful of banks with access to significant supplies of gold. 

The last big gold market dislocation occurred in 2020, when the coronavirus pandemic shut down Swiss refineries and grounded flights.

The price gap has created headaches for players that run large trans-Atlantic positions without easy access to bars. Some rushed to borrow back metal they lent out in London to cover their short futures positions in New York. They encountered a bottleneck at the Bank of England, which guards a hoard of bullion under its headquarters, most of which is owned by overseas central banks.

The Bank of England, though, has struggled to bring groaning pallets of gold up from its vaults fast enough to meet the rampant demand.

“There are real logistical constraints and security constraints," Dave Ramsden, deputy governor, said last week. “Getting into the bank for me this morning was a bit trickier because there was a lorry in the bullion yard…. It takes time and the stuff is also quite heavy."

But Gottlieb, the retired executive, said the system is failing. He points to the traders who clamor for gold and the central banks that keep gold at the BOE and would love to lend bars at sky-high interest rates—but can’t.

Write to Joe Wallace at joe.wallace@wsj.com