Q1 2021: A Slow Start To The Year

For the first time since Q1 2015, when the price dropped by 1.02%, gold opened the year with a losing quarter, falling 10.58% to finish March 2021 at $1691.05. Most of the damage occurred in February when the price fell 6.5%, apparently reflecting children’s writer Katherine Paterson’s comment that: “February is just plain malicious. It knows your defences are down.”

Paterson may be right. Defences — or at least investors’ perception of gold as a required store of value — softened as COVID-19 vaccination programmes stirred into action, and prospects of the two $2 tr Biden plans started to impact market psyche. And related to the Biden stimuli, fears of inflation edged towards centre stage for the first time in several years as the US 10-year Treasury rate rose by 87% from 0.93% to 1.74% through the quarter. Whether inflationary prospects lend support to gold, or whether higher bond yields will encourage investors away from the metal, is likely to be one of the talking points of the remainder of the year.

Associated with this lacklustre price performance, daily gold trading volume at some 33.4m toz was 22% lower in Q1 2021 by comparison to the rollercoaster ride traders and investors endured in Q1 2020 as the pandemic lockdowns first materialized. Turnover value was also down (by 8%) at an average $62.0 bn per day.

Unlike gold, silver has proved something of a slugabed in the first quarter of the past few years, with Q1 2017 being the last time the price moved into positive territory between January and March.

Q1 2021 was no exception with silver falling 8.2%, and this despite a week of exceptional trading at the end of January leading to a price rise of 15.41% to reach $29.585 on 1 February with a turnover exceeding 1 bn toz. In the five trading days to 1 February, average daily silver volume, propelled apparently by social media speculation, was 662.36 m toz, double the 12-week average of 325.35 m toz to end December 2020.

That said, while the perceived link between gold and silver was challenged in January 2021 and also by silver’s exceptional 2020 performance (and volatility), the five-year figures for the two metals from the beginning of April 2017 to the end of March 2021 are remarkably similar: +35.84% for gold and +34.63% for silver.

From the perspective of LBMA statistics, Q1 2021 was distinguished by the fact that gold and silver holdings in London vaults will be published in a more timely manner than heretofore – specifically with only a one week lag. Meanwhile, at end February 2021, London gold vault holdings stood at 9,559 tonnes, the first decline (from 9,601 tonnes at end-January) in 12 months; silver vault holdings were 34,996 tonnes.