By Rhona O’Connel, Head of Market Analysis, EMEA & Asia, StoneX Financial Ltd | Jan. 11, 2022
Gold full-year highlight:
There was heavy spot volume surrounding spot gold at end-January and early February, largely dragged up by the action in silver (see below); in fact, the first quarter overall traded in higher volume than the rest of the year with a daily average of 20.7M ounces against 16.3M per day on average over the following nine months. The absolute peak, however, at 30.9M ounces, was posted on May 28, and accompanied by improved volumes in the LoanLeaseDeposit category, though not so in the Swaps/Forwards. The trading range was narrow (normal for a heavy day), but the activity was likely triggered by the 0.7% M/M rise in U.S. Personal Consumption Expenditure – the largest gain in 20 years, equating to a 3.6% Y/Y rise in inflation and which re-ignited the debate about whether inflation in the States was transitory or had permanence. The price tapped out soon after, with the start of June heralding a downturn as the markets tried to assess what the economic and financial trajectory would be.
Hawks in the FOMC started to gain traction, and the massive drops in price between June 11 and 18 stemmed from a more aggressive “dot plot” from the FOMC than the markets had been looking for, and it is fair to say that most markets over-reacted to the press release. Spot volumes were normal to slightly above average, but forward volumes were brisk, suggesting some nervous hedging – or indeed some buying forward.
Overall, gold did not have an especially dramatic year; highlights in terms of the odd individual day were more the province of the other three metals.
Silver full-year highlights:
The obvious candidate here is the activity at end-January and early February when non-market-specialists misread the outstanding short COMEX futures position as being an outright short and moved into buying heavily into what they perceived to be a market ripe for a squeeze. In fact, this was not the case, as market participants, notably in the banking sector, will frequently sell the futures markets in order to finance long physical positions and capture the contango in the process. The ensuing spike in price (from an intraday low of $24.87 on Jan. 28 to $30.10 on Feb. 2) was very fleeting (they often are with silver, attempted squeeze or not), and within three days, the spot price was back to $26, where it had been on Jan. 21.
Volumes were very heavy in the derivatives, which is not surprising. Given that almost 70% of silver mine production is as a by-product of copper, lead-zinc or gold production, it is extremely likely that these miners, as well in all probability as primary silver mine producers, were hedging into this price strength. The swap/forward volumes, at 292M ounces and 347M ounces on 1st and 2nd February, stand out against an average for the full year (without those two days) of 101M ounces.
Platinum full-year highlights:
As the chart shows, spot volumes were patchy over the year, with a number of spikes and not a few troughs. If there is a real stand-out period, it would be February, which saw the year’s record spot volume of 1.9M ounces on the 16th, followed up by 1.5M and 1.6M on the 23rd and 24th, respectively. Taking these three days out, the annual average daily turnover would have been just over 750,000 ounces.
These volumes went through when platinum was completing and turning down from a very sharp price spike from $1,100 to $1,340 (on Feb. 16), a 22% gain in the space of just eight trading days. This was part of the reflation trade that was sweeping through the markets, stimulated in no small part by the release of President Biden’s Covid relief bill. At its peak, platinum was at its highest since September 2014 – but that bubble was soon to burst.
Palladium full-year highlights:
If anything, December was the highlight of palladium’s year in terms of trading volumes, with the year’s record posted on the 13th, as described in December’s note. This could therefore be seen as the year’s highlight.
In an honorable second place, however, was late October for spot, at 1.7M ounces, as prices had bounced off $2,000 and but were under pressure and were trying to hold above that support level. This ultimately failed, presaging the fall to below $1,600 as the markets absorbed the potential implication of the appearance of the Omicron virus and the potential for exacerbating the supply chain issues with the semiconductor industry. This, as we know, has hamstrung the auto sector, and these problems are not likely to dissipate in the near future. The auto sector accounts for 80% of palladium demand in normal circumstances, and with the production of estimated nine million vehicles lost last year, palladium has been facing a mountain to climb.
LBMA TD: XPT DAILY SPOT
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