July 06, 2022

LBMA Precious Metals Market Report: Q2 2022

The Definition of a Hedge

During the second quarter of 2022, the LBMA gold price fell by 6% (from $1933.35 on Friday, 1 April AM to $1817.00 on Thursday, 30 June PM).

Given that the Ukraine/Russia war intensified during the period, and that inflation – depending on the measure – neared 10% in the US, UK and some other western economies, this price fall prompted a series of commentators to suggest that gold was losing its lustre as a hedge against either economic or geopolitical instability.

Extrapolation from a single statistic is often, as in this case, misleading. As the chart shows, the gold price well withstood the quarter’s financial and military turmoil by comparison to a range of other assets. Indeed, the price gained fractionally in the six months from January through to the end of June, and in Q2 traded within a historically narrow range of less than 10%.

Despite and excepting the strength of the US dollar, which rose strongly against other leading currencies (for example +5.5% vs euro Q2, +8.6% vs euro H1), it is arguable that gold was the stand-out investment hedge of the period.

Au, Ag, S&P 500, £/$, Bitcoin - 2022

Source: LBMA, FT Data, Statista

Unlike gold, silver performed poorly during Q2, its partial status as an industrial metal reflecting the anticipated global economic slowdown. From Friday, 1 April 2022, the price fell 17.3% to close at $20.415 on Thursday, 30 June 2022, its year-to-date low.

Gold trading volume recorded a quarterly daily average of 28.24Moz, down 10.4% in Q2 by comparison to Q1. The Q2 average daily value was $53bn. The two highest turnover days were Thursday, 5 May (69.33Moz) – when, among other news, the Governor of the Bank of England warned the UK economy was heading for difficult times and likely to shrink, “pincered between soaring inflation and interest rate hikes” – and Friday, 10 June (69.59Moz).

Trading in silver, by comparison, was on average fractionally higher in Q2 than Q1 (319.05Moz compared to 315.00Moz per day).

Au, Ag - Average Daily Volume 2022

Source: LBMA