HSBC lost nearly $200 million in a single day amid gold-market turbulence

• HSBC lost nearly $200 million on one late-March day when gold prices in different trading hotspots sharply diverged, according to a Monday regulatory filing.
• When the coronavirus pandemic slowed global travel, gold's supply chain faced significant disruptions.
• Different markets that typically boast similar spot prices for the precious metal saw their price gaps swell to historic highs, Bloomberg first reported.
• HSBC attributed the massive loss to "unprecedented widening of the gold exchange-for-physical basis, reflecting COVID-19-related challenges in gold refining and transportation."
• Watch gold trade live here.

HSBC's mark-to-market losses soared to nearly $200 million on a single day in March when gold prices in different markets sharply diverged, a Monday regulatory filing revealed.

The one-day loss surged past the firm's value-at-risk calculations and further highlighted the commodity market turmoil seen at the end of March. When the coronavirus pandemic tanked global travel activity, gold's supply chain ground to a halt. Trading hotspots that previously touted largely similar spot prices saw their price gap dramatically widen as the metal's supply in different locales seized up.

Bloomberg first reported on the bank's one-day loss.

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HSBC is particularly exposed to dislocations in the gold market. The bank is among the biggest precious metal traders, and its use of exchange-for-physical trading left it especially vulnerable to such market phenomena. The method allows traders to exchange in both the New York and London markets.

When both cities' spot prices diverged, the bank's "gold leasing and financing businesses and other gold hedging activity" fueled heavy losses, the bank said in the filing.

HSBC attributed the larger-than-usual loss to "unprecedented widening of the gold exchange-for-physical basis, reflecting COVID-19-related challenges in gold refining and transportation." Losses posted at the end of March were sourced from valuation adjustments, the firm added.

Spot-price gaps around the world have since closed after the March flare-up. Gold itself has posted a sharp recovery from its mid-March lows, rallying above $1,700 in April as coronavirus fears gave way to fresh risk-on behavior.

Gold traded for $1,710.69 as of 8:25 a.m. ET Wednesday, up 12% year-to-date.

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