When market turmoil hits, gold trading can get weird – even for those used to wild markets. One common complaint from retail traders is that the spread on XAU/USD (gold vs USD) suddenly gets much wider across all brokers. It’s natural to wonder: “Are brokers hiking the spread on purpose?” In reality, these episodes usually reflect real market dislocations in gold itself – particularly involving something called gold swaps and EFPs (Exchange for Physical trades). In this article, we’ll break down why gold spreads can widen during stress, what EFPs and gold swaps are, and why it happens to everyone at once (not due to broker manipulation). We’ll also look at real cases like March 2020 and March 2024 when these dislocations hit home. By the end, you’ll see that such anomalies are a normal part of a global market under strain, and that brokers like ADFX are simply passing on the conditions of the wider gold market, not inventing them. 

What Are EFPs? Connecting COMEX Futures to London Spot 

Gold trades in two big arenas: the London OTC spot market (for immediate physical gold) and the New York COMEX futures market (for gold delivered in the future). EFP stands for “Exchange for Physical,” and it’s basically the bridge between these two markets. The EFP is quoted as a price difference (spread) between a COMEX gold futures contract and the equivalent spot price in London. In normal times this difference is tiny – often just a few dollars or less – reflecting storage costs, interest rates, and a bit of arbitrage friction. Essentially, futures usually trade at a slight premium to spot, since holding gold has costs while holding cash can earn interest. Traders can do an EFP transaction to swap a futures position for physical metal (or vice versa); for example, if a bank is short a gold futures contract, it might use an EFP to get physical gold in London to deliver against that future. 

Under normal market conditions, arbitrage keeps the futures and spot prices tightly linked. If the gap gets too wide, savvy traders will buy one and sell the other until the difference (called the basis) is small. This balance is why the gold price you see on most platforms feels unified globally. 

However, when markets are stressed, the EFP spread can “blow out” dramatically. This means the futures price and spot price diverge by an unusually large amount. A positive EFP (futures > spot) might suddenly jump from a couple of dollars to tens of dollars. In other words, the basis between “paper gold” (futures) and “physical gold” (spot) widens. This is a signal that something is off in the usual arbitrage mechanism – often because it’s actually hard to execute the physical side of the trade at that moment. Things like delivery logistics or shortages of deliverable gold can prevent arbitrage, allowing the spread to balloon. 

Gold Swaps and Lease Rates: Gauges of Gold Liquidity Stress 

Another piece of the puzzle is the gold swap/forward market and gold lease rates. In the OTC market, a gold swap (or forward) is essentially a contract to trade gold for dollars now and reverse it later – it’s like a loan where gold is the currency. The lease rate is the implicit interest rate for borrowing gold, akin to how you’d pay interest to borrow cash. Under normal conditions, gold has a slight financing cost: holding physical gold ties up money and incurs storage, while dollars earn interest. So normally, gold futures/forwards trade at a slight premium to spot (contango) to compensate for those costs. 

When the market is flush with gold supply, the gold lease rate stays low (even near zero or negative), and everything is orderly. But in a liquidity crunch for physical gold, this relationship flips. If gold in hand is scarce and everyone is desperate to get it, lenders of gold can charge more. The gold lease rate shoots up and can even exceed dollar interest rates – meaning holders of gold demand a premium to lend it out. This causes gold forward prices to drop below spot prices (a situation called backwardation). Negative swap rates are a clear sign that traders are paying interest to borrow gold short-term. In plain terms, gold for delivery today is more valuable than gold delivered next week or next month. This only happens when immediate physical gold is in high demand or short supply – a classic marker of stress in the gold market. 

Think of gold lease rates as the “interest rate” on gold: if it spikes, it’s like a credit crunch but for gold availability. During stress, you might hear that the market is “bid for gold near-term” or that “gold went into backwardation.” This is telling us that bullion banks are scrambling to source gold right now, pushing up the cost of short-term gold loans. These conditions often coincide with a widening EFP/basis as well – both are symptoms of the same illness. When gold lease rates jump and swaps go deeply negative, it’s a sign that physical gold is hard to get, which will reflect in spot-future dislocations. 

When the Basis Blows Out: Understanding a Widening EFP Spread 

So what does it mean when we say the gold basis “blew out”? Essentially, it means the COMEX futures price jumped far above the London spot price, indicating a big disconnect. If you’re watching XAU/USD quotes, you might notice strange behavior – perhaps spot prices lagging futures, or certain delivery locations quoting higher prices than others. A blown-out basis is an arbitrageur’s dream on paper (buy the cheaper spot, sell the pricier future, and deliver later for a profit). But the catch is you must be able to get your hands on physical gold and deliver it – not always easy in a crisis. When the basis is wide, it often signals that something is preventing normal arbitrage. Common culprits are logistics and delivery issues: gold in the wrong form or place. 

Physical gold isn’t uniform – London deals in 400-ounce bars, New York’s COMEX uses 100-ounce bars or kilo bars. In a stress event, suddenly everyone might want gold in New York. If all the gold is sitting in London (in 400 oz form), you have to recast it to 100 oz bars in Switzerland and fly it to NYC to satisfy COMEX delivery. In normal times that conversion is routine and the cost is negligible. But when there’s a surge in demand to move gold to a different location, those location swap spreads appear – basically a premium for gold where it’s needed, and a discount where it’s coming from. If planes are grounded or refineries maxed out, this becomes a real bottleneck. 

In those scenarios, futures prices can surge above spot because traders in New York are frantically bidding for any assurance of gold delivery, while spot in London lags because that gold can’t instantly move to NY. This is exactly what the EFP widening represents – New York vs. London price divergence. A widened EFP (high basis) is often described as the market’s stress barometer. It tells us the usual link between paper and metal is strained. Market makers who normally arbitrage the two might step back because they’re unsure they can physically deliver on time. As a result, the gap doesn’t close right away and can even widen further as panic builds. 

For example, during the COVID-19 crisis in March 2020, this happened in dramatic fashion. With flights cancelled and refineries shut due to lockdowns, COMEX gold futures exploded to over $100 per ounce higher than London spot prices. Traders were desperately covering futures delivery needs with very little gold able to move between hubs. Physical gold became so scarce in New York that normally small spreads turned into a triple-digit gap. Premiums for actual metal skyrocketed – at one point dealers were paying nearly 10 percent above spot for physical gold. This kind of basis blowout was unprecedented, and it took extraordinary measures (and a few months) to settle down. Another episode in early 2024 saw basis stress return (albeit less dramatically) when gold prices hit record highs. Futures investors piled in fast, and while not as extreme as 2020, the April 2024 COMEX contract traded well above spot, signaling renewed delivery concerns in the market. The key point is that when you see these spikes in EFP or basis, it’s a symptom of the market pricing in a shortage or risk in getting gold where it needs to be. 

Why All Brokers’ Gold Spreads Widen During Stress 

So why do all brokers suddenly quote wider spreads on gold during volatile times? It’s simple: when the underlying market itself becomes dislocated, everyone up the chain — from bullion banks to liquidity providers — widens their quotes to manage risk. If COMEX futures are trading far above London spot or gold swaps turn sharply backwardated, it becomes harder and costlier for dealers to hedge. The uncertainty filters down, and every retail broker receives pricing that reflects that stress. 

This isn’t brokers “ganging up” to raise costs; it’s the wholesale market resetting its risk tolerance. When liquidity thins out or delivery costs spike, even big banks quote each other with wider spreads. And since brokers like ADFX stream prices directly from those providers, the quotes you see naturally widen too. 

In fact, that’s what you want to see in a functioning market — spreads that expand when conditions are unstable and tighten when things normalize. If you ever come across a broker whose gold quotes magically stay razor-thin when everyone else’s are moving wider, you might want to ask yourself: are they really plugged into the market, or just showing you a pretty number on the screen? 

Real-World Examples: Market Stress in March 2020 and March 2024 

To put theory into practice, let’s briefly look at two real-world cases where gold market dislocations caused spread turbulence: March 2020 and March 2024. 

In March 2020, as the COVID-19 crisis unfolded, international flights were halted and gold refineries, especially in Switzerland, were temporarily shut. COMEX gold futures went into steep backwardation versus London spot, indicating that immediate delivery gold was at a premium. The EFP spread that is normally two dollars jumped towards fifty, then seventy, and briefly over one hundred dollars at the peak of panic. This meant if spot gold was $1,600 in London, the futures price in New York was trading above $1,700 – a massive gap. Dealers who arbitraged between London and New York were caught off guard: suddenly it wasn’t clear when they could fly 400 oz bars to New York to fulfill deliveries. The result was chaos in pricing. On the retail side, gold spreads on trading platforms widened significantly (some brokers temporarily quoted spreads multiple times normal levels). It wasn’t just you – the entire market was effectively pricing in the cost and risk of moving gold under lockdown conditions. Eventually, the crisis eased as supply routes were restored and arbitrage resumed, but March 2020 went down in history for that incredible basis blowout. 

Fast forward to March 2024, when gold prices surged to all-time highs. Rather than a supply shock, here the issue was demand. Futures traders and funds were piling in, and gold hit over $2,200 per ounce by early March. During this rally, there were subtle signs of strain beneath the surface. Implied volatility spiked, and at moments the gold forward rates flirted with backwardation, suggesting that short-term demand for metal was intense. While not as dramatic as 2020, traders noted the basis widening again – for instance, the near-term COMEX future traded at a noticeable premium to spot, reflecting hedging pressure. Some delivery delays appeared as the physical market worked to catch up with the paper demand. In that period, many brokers’ XAU/USD spreads crept up during volatile days. Again, this wasn’t a quirk of any one broker; it was the global market adjusting to rapid flows and the risk that if everyone demanded physical gold at once, the system could get tight. By late March 2024, as volatility settled, spreads normalized. But it was a reminder that even during a bull market run, stress can appear in the plumbing of the gold market – and when it does, it shows up in the prices and spreads we all see. 

Conclusion: Dislocations Are Normal – And Transparency Matters 

Gold is a unique asset with a truly global market. It trades on multiple continents, in multiple forms, 24 hours a day. That complexity means that sometimes, linkages break and strange things happen with pricing. These dislocations – like gold swaps going negative or EFP spreads blowing out – are actually a normal part of a functioning global market under stress. They are the market’s way of adjusting to short-term shocks, whether it’s a sudden shortage of bars in New York or a surge of demand from investors. When you see a wider spread on XAU/USD during these episodes, remember that it’s almost certainly not your broker singling you out – it’s the entire market moving to a wider spread. 

At the end of the day, these periods of strain don’t last forever. As logistics normalize and arbitrage resumes, gold’s pricing links usually fall back into place. When markets are calm, spreads tighten; when conditions turn volatile, they widen — not because anyone chooses to, but because that’s how the global market adjusts. 

Wider spreads during stress aren’t a sign of manipulation, but of the system protecting itself. It’s how liquidity providers manage risk and keep trading possible when uncertainty runs high. So the next time you see gold spreads jump across every platform, you’ll know it’s not a broker’s trick — it’s the market’s way of catching its breath. 

At ADFX, our role is to stay aligned with that market reality: offering fair, transparent pricing that moves with global liquidity, not against it. Even when things get a little crazy, we make sure your prices remain real, reliable, and true to the market itself.