Investment Banks Profiting from High Gold Prices... "Precious Metals Earnings Expected to Reach Highest in 9 Years"

Top 50 Global Investment Banks Expected to Earn $2.5 Billion This Year... Twice Last Year's Level
Increasing Investments and Exploiting Gold Price Differences Across Exchanges

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The rollercoaster ride of precious metal prices such as gold and silver is expected to result in the highest related profits for global investment banks in nine years. Precious metals experienced sharp fluctuations this year due to the impact of the novel coronavirus disease (COVID-19), allowing significant gains from price differences.

On the 23rd (local time), major foreign media reported through the outlook of the banking consulting firm Coalition that the top 50 investment banks worldwide are expected to earn $2.5 billion (approximately 2.9 trillion KRW) in profits from precious metals this year. This is more than double last year's ($1.2 billion) figure and marks the highest level in nine years. Analysts attribute this to investors flocking to the precious metals market and the significant volatility caused by the COVID-19 situation, which generated profits.

Investment banks have increased precious metals trading since the beginning of this year. Investment banks including Goldman Sachs, Morgan Stanley, and Citigroup have increased gold-related transactions over the past few months. Deutsche Bank also hired additional precious metals traders. Foreign media reported that banks such as Wells Fargo, BNP Paribas, and Barclays, which previously did not engage heavily in gold trading, have also entered gold investment. Profits were also made through gold-related exchange-traded funds (ETFs). The World Gold Council stated that more than $60 billion has been invested in gold-related ETFs this year.

In particular, the price difference between the two major gold trading exchanges?the London Metal Exchange (LME) in the UK and the New York Commodity Exchange (COMEX) in the US?provided banks with opportunities to generate profits. During March and April, when COVID-19 paralyzed air transport and other sectors, gold prices surged in New York due to supply shortages relative to demand. At that time, New York trading prices were nearly $60 higher than London. According to Bloomberg, on April 9, the October delivery gold price on COMEX was $1,752.9, while it traded at $1,693.8 on the LME, creating a gap of $59.1. Foreign media also reported that in March, prices traded in New York were $70 higher than in London.

Amrit Shahani, an analyst at Coalition, explained that as gold prices diverged, banks with transportation capabilities were able to bring gold from London to New York and earn profits. In fact, the amount of gold currently held at COMEX has quadrupled since March, reaching 37 million ounces, valued at $69 billion. However, COMEX gold futures prices remain lower than those in London.

Gold prices have shown the greatest volatility among precious metals during the COVID-19 situation. In March, when COVID-19 was intensifying, gold prices sharply dropped due to the strong dollar but then rose, surpassing $2,000 per ounce in August to reach an all-time high. However, as COVID-19 resurged mainly in Europe, market anxiety increased, the strong dollar phase resumed, and gold prices have fallen. On this day, December delivery gold traded on COMEX closed at $1,868.40 per ounce, down 2.1% ($39.20) from the previous day, marking the lowest level in two months. The dollar index surged to 94.389, the highest point in the past eight weeks. Silver prices also rose more than 100% from March to August but have fallen about 16% in the past ten days, showing a pattern similar to gold prices.