Last week, we discovered precisely which bank got hammered by the violent divergence between the spot and future price of gold. As we reported, “HSBC had 15 “back-testing exceptions” in January and March, when the firm was caught out by moves in the prices of precious metals. Europe’s biggest bank said … problems were caused in part by “delivery disruptions in the gold market” which means that we now know which bank was on the other side of the gold spot-future trade.”
Today we also learned just how much these unexpected moves cost Europe’s largest bank: according to Bloomberg, HSBC lost around $200 million in one day in March because of the previously discussed disruptions to the gold market that caused prices to diverge dramatically in key trading hubs.
The one-day loss, which far exceeded the maximum loss anticipated by HSBC’s value-at-risk models, was unusually large for a market in which the leading banks – HSBC and JPMorgan – typically make around $200 million in an entire year. In other words, in one day, HSBC lost an entire year’s worth of revenue.
HSBC’s loss highlights the extreme nature of the disruption to the gold market in late March, as lockdowns closed refineries and grounded planes, strangling the supply routes that allow physical gold to move around the globe. As we discussed at the time, the price of gold futures in New York and spot gold in London, which usually trade within a few dollars an ounce of one another, diverged by as much as $70, the most on record.