A massive arbitrage trade in precious metals that had flooded the United States with more than $80 billion in gold and silver ended abruptly after Wednesday’s announcement that these metals would be exempt from President Donald Trump’s new tariff policy. For months, traders reacted to unusually high price premiums in New York compared with global benchmarks, a gap driven by market concerns about potential tariffs on bullion.
These price differences—known in the industry as “exchange for physical” (EFP)—collapsed sharply on Thursday following the exemption announcement. Gold’s premium fell from over $62 to about $21 per ounce, while silver’s premium sank from more than $1 to roughly $0.08 per ounce. The sudden reversal halted the arbitrage flows that had brought record volumes of precious metals into U.S. warehouses.
The inflows had measurable macroeconomic consequences. They contributed to a record U.S. trade deficit in January, a distortion so large that some economists excluded gold from their trade calculations to better reflect underlying goods and services flows. Although imports eased slightly in February, they remained historically elevated. Since November, U.S. gold holdings rose by approximately 26.5 million ounces, and silver inventories increased by about 174.6 million ounces.
Market participants said the tariff-exemption announcement removed the primary incentive for the arbitrage: the safety of bringing metal into the U.S. without the risk of sudden levies. With the prospect of tariffs off the table, the EFP spreads narrowed, eliminating the profitability of transporting large quantities of bullion to American warehouses. Traders who had moved metal to exploit the price differentials either reversed those positions or stopped initiating new shipments, leading to the sharp drop in premiums.
Analysts note that while the immediate arbitrage unwind reduced cross-border flows, the episode underscores how trade policy announcements can quickly reshape commodity markets. Large deviations between New York and global prices opened opportunities that traders exploited until the policy surprise removed the underlying distortion. Going forward, observers will watch whether U.S. inventories stabilize or begin to normalize as the market absorbs the change and trading strategies adjust.
In the near term, the collapse in EFPs is likely to ease physical demand for importing bullion into the U.S., which could lead to lower domestic premiums and narrower price gaps with international benchmarks. At the same time, the large stockpiles accumulated over recent months will influence domestic supply dynamics and may affect futures and spot pricing until inventories return to more typical levels.
Overall, the swift policy clarification removed a major source of uncertainty and abruptly ended an extraordinary arbitrage cycle that reshaped U.S. precious metals flows and affected trade figures. Market participants now face the task of recalibrating positions and managing inventories in a market that has rapidly shifted back toward conventional pricing relationships.