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Q1 Figures Underline Gold's Role as a Safe Haven

Tuesday, April 07, 2020

London OTC Trading Volume Equivalent to $4.32tr as Price Rises 5.8%

Figures released today by LBMA confirm gold’s continuing importance as a key store of value at times of global economic turbulence.

During the first quarter of 2020, the London gold price rose 5.8% from $1,520.55 on 2nd January to $1,608.95 on 31st March. During the same period leading equity indices fell heavily with the S&P 500 losing a fifth of its value, the FTSE 100 and the Dax off over a quarter and the Hang Seng down over 17%.

OTC Gold Turnover
London OTC gold volume increased through the quarter: In the 22 trading days of January, turnover was some 850m oz equivalent to $1.32tr, February (20 days) 850m oz = $1.37tr, March (22 days) 1,037m oz = $1.63tr. In summation, the Q1 2020 total London OTC turnover was some 2,736.7m oz equivalent to $4.32tr. This compares to an estimated turnover of 2,000m oz in Q4 2019 (also 64 trading days), equivalent to approximately $3.00tr.

Gold Market "Resilient"
Gold’s Q1 2020 price rise included a brief period of exceptional volatility. In the eight trading days 6th – 17th March, the gold price fell 12.7% from a high of $1,687.00 per oz to a low of $1,472.35 oz before resuming its steady upward trend. “The gold market continues to be resilient and durable even in these unprecedented market conditions, but even the safest, most liquid assets suffer occasional, short bursts of volatility and gold is no exception” commented Ruth Crowell, CEO, LBMA.

“Gold's sharp price swings in Q1 were in part driven by traders taking profit to cover losing positions in other assets, tapping the unparalleled liquidity of the London market” said Adrian Ash, Director of Research at BullionVault. “Gold came into this crisis at 7-year highs, and it has extended those gains as the uncertainty has worsened, albeit on the strongest volatility in over a decade.”

Safe Haven
Using the Q1 2020 London OTC trade data, LBMA has updated its liquidity study for gold. The analysis has again been compared to the European Banking Authority’s data and continues to demonstrate that gold is an attractive asset which outperforms even formally classified ‘high-quality liquid assets’.

Specifically, the Amihud Illiquidity Ratio for gold showed a fractional increase. The original measure from Nov 2018-Apr 2019 was 0.000018; the new measure up until end of March, 2020 is 0.00002. The ‘Price Impact’, measured by looking at the price change of the auction price from day to day, recorded a slight deterioration from 0.348 to 0.545. “By any measure, gold is maintaining its centuries old role as a safe haven and store of value in troubled times,” said Ruth Crowell.