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--:-- Host (Jessica Mendoza): Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, February 26th. Recently, planes have been crossing the Atlantic Ocean with some pretty surprising cargo. The flights take off from Europe bound for New York. They carry the usual passengers, vacationers, business people, and the usual luggage. But along with all those identical black roller bags, they're carrying something else. Many, many tons of gold are flying over the Atlantic in the cargo hold of passenger planes. Gold bars? Bars, yeah. Bars. Bars of gold.
--:-- Host (Jessica Mendoza): That's my colleague Joe Wallace. Would I ever know if gold was on my flight? No, no, no. They would never tell you. Then you'd be a target, right, for some armed robbery. That's true. Are there load balancing issues involved? Excellent question. The limitation, I think, is financial. You can generally take up to five tons of gold, which is about half a billion dollars of gold on a flight. And that's because the insurers won't insure anything above that. Well, that's a lot. Yeah, it's a lot of gold.
--:-- Host (Jessica Mendoza): You may have heard about the gold market. Maybe you even follow it a little bit. But the details of how this market actually works, the actual mechanics of it, can get pretty complicated. It turns out the story of how gold ended up on planes involves vaults deep under the streets of London, Swiss gold refiners, New York gold traders, and one U.S. president.
--:-- Host (Jessica Mendoza): Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, February 26th. Coming up on the show, why billions of dollars worth of gold is flying commercial over the Atlantic.
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--:-- Host (Jessica Mendoza): The fact that so much gold is being hauled in passenger planes is a symptom that something is off in the gold market. But to understand what's wrong, you have to understand how this market usually works. Who buys gold? So, you know, some of the biggest buys of the past few years have been central banks. They buy gold, for example, in case they need to defend their local currencies. And if you have a big stockpile of gold, you can sell gold to buy your currency and support the currency.
--:-- Host (Jessica Mendoza): Then there's commercial companies like jewelry companies. Tiffany will buy gold to make rings and earrings and necklaces, etc. And very, very wealthy people might own gold bars. There are a lot of gold bugs out there who buy gold as a kind of doomsday asset in case inflation rockets or there's a war or some other pestilence or plague.
--:-- Host (Jessica Mendoza): And then there are the banks in particular JP Morgan and HSBC. You know, some of the world's biggest financial institutions have huge gold businesses buying and selling gold or investing in gold companies and miners. They kind of sit at the center of the market and knit the whole thing together. So they might buy gold from a mine, sell it to a refinery in Switzerland, then sell it on to a client who wants to buy gold.
--:-- Host (Jessica Mendoza): The gold market is anchored by two cities. One is London. That's dating back to when Isaac Newton was head of the UK Mint. Wow, OK. London has been the physical gold market has revolved around London and specifically vaults, you know, far beneath the streets. So if you want to buy like a physical gold bar, you go to London for that? Yeah, that would be your first port of call.
--:-- Host (Jessica Mendoza): The gold market's second hub is New York. Since the 70s, there's been a very, very active financial market in gold, you know, financial contracts, derivative contracts in New York. And the banks that play such an important role in the gold market, they're constantly trading between the two locations, London and New York, London and New York.
--:-- Host (Jessica Mendoza): The gold traders at these banks, they're our main characters in this gold-on-a-plane story. They're sitting on billions of dollars worth of gold bars stored in vaults in London. And Joe says owning all that gold can be kind of risky. If you're JP Morgan and you own, I don't know, a billion dollars of gold in London, gold doesn't, it's not like a stock. You don't get a dividend. It's not a bond. You don't receive a coupon. It's some metal. It doesn't, you only gain money if the price rises. But you don't want to sit there with a massive billion, $5 billion, $10 billion exposure, are hoping the price of gold goes up. It may never go up. And in fact, the price might go down, and that's a big risk.
--:-- Host (Jessica Mendoza): If the price goes down, then you've lost a load of money. So handily, there's a way to offset that risk, which is by selling futures in New York, and that's called hedging. You're hedging your bets. Here's how it works. Say I'm a gold trader at a bank, sitting on a billion dollars worth of gold in London. That gold is worth, say, 2,500 bucks a troy ounce. That's the standard measured for gold, by the way, a troy ounce.
--:-- Host (Jessica Mendoza): But I'm worried that the price of gold is going to fall. I want to lock in that $2,500 price. So I head over to New York and I sell gold futures, basically a promise to sell gold at a certain price at a certain time. In this case, I sell futures contracts promising to sell gold at $2,500 an ounce at some later date. I lock in that price. If you own gold bars in London and you've sold gold futures contracts in New York, you have two kind of mirror image trades.
--:-- Host (Jessica Mendoza): If the price of gold falls by 50%, you lose 50% on your position in London. So on paper, my billion dollars worth of gold is worth just half a billion. But you gain 50% on your position in New York because you sold at $2,500, the futures contract. And after that, the price of gold in the open market falls to $1,250, your agreement to sell gold at $2,500 is suddenly incredibly valuable because that's twice the value of gold in the market now. So in theory, you should be level, whatever happens in the market.
--:-- Host (Jessica Mendoza): Okay, so it's kind of like a seesaw. Like if gold prices are down in London, but I was able to sell futures in New York, that means I'm up in New York. Exactly. Yeah, and vice versa. Yeah, precisely. And this almost always works? Pretty much, yeah. Assuming the London and the New York markets move pretty much in lockstep, which they mostly do, you're protected.
--:-- Host (Jessica Mendoza): This is a very important caveat. For this seesaw trade to work, gold prices in London and New York need to be pretty much the same. They need to move together. When they don't, the seesaw snaps. And that's what happened late last year. It's all to do with President Trump.
--:-- Host (Jessica Mendoza): The word tariff, properly used, is a beautiful word. One of the most beautiful words I've ever heard. It's music to my ears. Before the election, Trump mooted the possibility of putting a universal tariff on everything that the U imports of 20 percent. And around the time of the election people thought hang on what if that tariff is applied to gold.
--:-- Host (Jessica Mendoza): Gold traders began to worry and they began pricing in that worry. On the assumption that gold in the U.S. was about to become a lot more expensive, they started charging more for it. The price of U.S. gold began to climb. How much more expensive is gold in New York versus London right now? Today, it's been so volatile, it's hard to keep track. But over the past few months, it's averaged about $20, more in New York than in London. It reached a high of about $50 or $60. Normally, that's like $2 or $3. So it's way, way higher than normal.
--:-- Host (Jessica Mendoza): And that's baking in a possible tariff at the U.S. border on gold. This was bad news for the gold traders at big banks who'd been relying on that seesaw trade. The price of gold in New York was climbing, which meant that their contracts to sell gold at the earlier, cheaper price were losing money. They were down in New York. But they weren't up enough in London to balance it all out, because the price of gold wasn't rising as much in London.
--:-- Host (Jessica Mendoza): Suddenly, they were losing a lot of money on their New York positions, and they weren't gaining as much on their London positions. So if you're in that position, if you're a gold trader at a bank, you might get a knock on the door from your risk committee saying, hang on, on paper, you're losing a lot of money here. What can we do about this? To do nothing and just eat the loss was potentially disastrous.
--:-- Host (Jessica Mendoza): How much money is at stake here? Like, how much money could the banks lose? They're very secretive about what, they never want to admit to the size of the positions or what they're possibly losing. But you hear, you know, in the market, you hear about kind of hundreds of millions of dollars possibly. That's the worst case scenario. It's much cheaper to get out of the loss-making trade by sticking gold on the plane, getting it over to New York, and handing it to the person who owns the futures contract.
--:-- Host (Jessica Mendoza): Planes. That was the solution. Remember, the traders at the big banks had gold, cheaper gold, sitting in their vaults in London. Traders could use that cheaper gold to pay off their contract holders in New York, where gold was expensive. They could still fix this. All they had to do was get their gold across the Atlantic.
--:-- Host (Jessica Mendoza): But that would be easier said than done. That's after the break.
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--:-- Host (Jessica Mendoza): This episode is brought to you by Walmart. Did you know that Walmart is one of Fortune 100's best companies to work for in 2025? It's no surprise. Walmart is investing $1 billion in training and development to help associates build lasting careers with or without a degree. In fact, 75% of Walmart management started in hourly roles. With benefits like health care, paid parental leave and tuition support, Walmart isn't just a place to work. It's a place to grow. Learn more at walmart.com slash spark.
--:-- Host (Jessica Mendoza): This episode is brought to you by AARP. They have reskilling courses and career tools to help your income live as long as you do. The younger you are, the more you need AARP. Learn more at aarp.org slash skills.
--:-- Host (Jessica Mendoza): The gold traders had their plan. Fly gold from London to New York and avoid big losses. But there would be many hurdles along the way, starting with just getting their gold out of the vaults in the first place. There are plenty of private vaults in London, but by far the biggest stash of gold is at the Bank of England. The Bank of England. It's a gigantic stone edifice at the center of London's historic financial district. Underneath it lie nine vaults, containing about 400,000 gold bars.
--:-- Host (Jessica Mendoza): Most of that is owned by overseas central banks, but also by commercial banks. Yeah, it's giving like Gringotts from Harry Potter. Well, there's your money, Harry. Gringotts, the wizard bank. I'm picturing underground vaults, like trains, goblins. Exactly. Although right now, think of a couple of overworked, harried forklift drivers rather than goblins.
--:-- Host (Jessica Mendoza): Bank of England employees have been stressed lately because for months, gold traders have been lining up, trying to get their gold out of their vaults to fly it to New York. A huge long queue developed to get gold out. And by all accounts the people manning the vaults were struggling to meet demand and that partly for a slightly quirky reason.
--:-- Host (Jessica Mendoza): If you own gold at the Bank of England, you have a claim on a specific bar, so the same bar that you put in has to come out. And that means that the people who run the vaults have to go in and find your specific bar on... Does it have your name stamped on it? No, I don't actually know how they identify it. Joe's gold, like. Exactly, yeah, yeah.
--:-- Host (Jessica Mendoza): The queue to get gold out of the central bank got long, like eight weeks long, which was a problem because these traders had a deadline. Futures contracts run month to month. So traders just had a few weeks to get their gold out of London and into the hands of contract holders in New York. According to Joe's reporting, anxious traders were calling up Bank of England officials to try to move things along. The bank told them they had to wait their turn.
--:-- Host (Jessica Mendoza): So if you needed that gold to get out of your trade, you're toast and you have to eat the loss. Some lucky traders did manage to get their gold out, only to face a new problem. Their gold bars were the wrong size. They couldn't be traded in New York. The New York Exchange, it accepts the different sizes of bar to the bars which trade in London. Naturally. Exactly.
--:-- Host (Jessica Mendoza): This isn't the system you would design on paper if you were inventing the market today, but you have to resize them. So the refinery, well, three main refineries, and they'll melt the bars down and just recast them into the right size of bar that you can send over into New York. Those refineries, though, aren't in London. They aren't even in England. Most of them are in Switzerland.
--:-- Host (Jessica Mendoza): Which meant some traders had to arrange side trips for their gold bars before they could finally be sent to New York. What's involved in flying it to New York? You'll hire one of the few security companies that specialize in moving very high-value goods, and they take gold in kind of secure vans over to the airport, and then it goes into the hold of a commercial plane. And then on the other side of New York, the same thing happens. It goes in a van across town into a vault.
--:-- Host (Jessica Mendoza): For all the trouble involved in trying to get gold across the Atlantic, for those who could pull it off, it was worth it. We don't know who, you know, there are all sorts of rumors in the market about who might have lost money. But given the amount of gold that has flown over over the past few months, you have to assume that a lot of banks were pretty successful in getting out of those loss-making trades.
--:-- Host (Jessica Mendoza): Not only that, Joe says some people are making money. Soon after almost losing their shirts, some traders have embraced a new strategy. One that takes advantage of gold's price difference in London and New York. Once you've got out of those loss-making trades, you then have a great chance to make a load of money because suddenly gold is much cheaper in London than New York.
--:-- Host (Jessica Mendoza): So you put on a new trade, you buy more gold in London, and you lock in a much higher price in New York. And provided, if you know you can get the gold over, it's almost free money. So it's like the old buy low, sell high. You buy gold for cheap in London, you fly it over to New York, and then you sell it high. Exactly. It's a classic arbitrage. It's a higher price in one market than another, and you make good money.
--:-- Host (Jessica Mendoza): All of which means those transatlantic gold flights probably won't be stopping anytime soon. That's all for today, Wednesday, February 26th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.
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--:-- Host (Jessica Mendoza): Yo, this is important, man. Uh, my favorite Lululemon shorts, the ones you got me back in the day, I think they're called pace breakers, the ones with all the pockets. I just got back from vacation and I left them in my hotel room. And dude, I need to replace these shorts. I wear them like three times a week. Could you send me the link to where you got them? Oh, also, my birthday's coming up soon, so... Anyways, thanks, bro. Talk soon.
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--:-- Host (Jessica Mendoza): Looking for your newest go-to's? Lululemon What's New Gear drops on Tuesdays, every Tuesday. Head to lululemon.com to shop what's new gear.
