A small number of clearing members handle the overwhelming majority of transfers. Concentration of that order is efficient until one participant has a bad week.
The March 2020 lesson
The dislocation then was not about demand for gold. It was about the ability to move metal between locations and formats at short notice. Very little about that constraint has structurally changed.
What would help
More published data on location swaps, transparent capacity for bar conversion, and a public account of what happened last time.
Location swaps and the invisible plumbing of the market
Much of the gold market's day-to-day liquidity depends on the ability to swap metal between locations, such as London and Zurich, or between forms, such as large good delivery bars and the smaller kilobars used across Asian markets, without physically moving the metal itself. These swaps rely on a relatively small number of bullion banks holding metal in multiple locations and forms simultaneously, extending short-term credit to one another to smooth timing mismatches. That system works efficiently under normal conditions and has historically proven far less resilient when several participants need to unwind swap positions in the same direction at the same time, which is exactly what happened during the acute dislocation of March 2020.
The physical disconnect that emerged then, between the futures price in New York and the spot price in London, was resolved relatively quickly once new delivery logistics were established, but it exposed how thin the buffer of readily deliverable, correctly located and correctly formatted metal actually is relative to the size of the paper market trading against it.
Concentration risk that has not gone away
The number of banks actively clearing gold transactions in London has not grown in line with the volume being cleared, which means the operational failure or temporary withdrawal of even one major clearing member could meaningfully strain the system's capacity to process transactions smoothly. Regulators and market bodies have discussed broadening participation in clearing for some years, but the capital and operational requirements of becoming a clearing member remain a significant barrier to new entrants, leaving the market reliant on the continued willingness of a small group of incumbents to keep providing the service.
A market that has grown as much as gold has over the past decade, in both physical and paper volume, would benefit from a clearing and settlement infrastructure that has grown at a comparable pace alongside it, rather than one that has simply absorbed additional strain onto the same small set of participants.
