July 31, 2024

LBMA Precious Metals Market Report: Q2 2024

Disconnection

Through the second quarter of 2024, the only western world central banks to cut interest rates were the ECB, the Canadian National Bank, the Sveriges Riksbank (Sweden) and the Swiss National Bank — all of whom shifted rates downwards in June, twice in the case of the Swiss. However, despite various optimistic forecasts, sticky US inflation figures and continuing economic strength, the Federal Reserve Bank were not encouraged to follow suit.

US interest rates and the concomitant strength of the dollar are normally a core driver of the gold price. But during the first half of 2024, and most notably in April and May, geopolitical issues in particular ensured a strong YTD performance in the gold price — despite a higher real rate of return being generated by bonds and other fixed income securities.

One example serves for many. On Monday, 20 May, Iran’s President Ebrahim Raisi and Foreign Minister Hossein Amirabdollahian were confirmed dead after their helicopter crashed in a mountainous and forested area in the country’s East Azerbaijan province amid dense fog.

Likely in response to this news, which added to the continuing tension in the Middle East caused by the ongoing Israel/Palestine conflict, the gold price gained just under $42 from Friday, 17 May (PM) to Monday, 20 May (AM) to hit a new high of $2,444.35.

The apparent disconnect between US economic statistics and the gold price was underlined by a spate of investor buying on the Shanghai Futures Exchange during April. In context, the average daily volume for 2023 on that exchange was $13.89bn, whereas in April 2024 alone it was over $41bn. This was widely read as being leveraged buying from individual investors who were trying to avoid the fallout from the Chinese property market and general slowdown in growth. In the London market, the average daily value was $101.3bn for Q2 2024.

At an institutional level, Chinese central bank gold purchases have continued strong throughout 2024 so far (to end-May) although currently outshone by Turkey. According to the World Gold Council, Turkish net purchases were over 40 tonnes, whereas China’s (and India’s) holdings increased by a little under 30 tonnes. In May specifically, the National Bank of Poland led the way (+10 tonnes), followed by Turkey (+6 tonnes) and India (+4 tonnes).

All this activity led to a gold price rise of some 12.34% in the first half of 2024, although most of this increase occurred in Q1. Q2 saw a rise of 2.93%, from $2,264.55 (AM) on Tuesday, 2 April to $2,230.90 (PM) as the quarter came to a close on Friday, 28 June. That said, a comparison with the price movement in Q2 2023 — a decline of 2.60% ($1,963.10 to $1,912.25) — underlines the assertion that the gold price has found a new level and, indeed, the opening and closing dates of Q2 2024 were two of only seven trading days in the three-month period when the price set at lower than $2,300.00

Whether these high prices, exacerbated by falls in local currency rates against the dollar in a number of countries, will continue to attract investors is open to question. The World Gold Council has predicted that gold will be more range bound during the second half of 2024 and, according to the Financial Times, Indian investors, for example, are already becoming discouraged:

“Indian consumers’ love of gold is renowned: it is traditionally seen as a store of value for families, and has links to Lakshmi, the Hindu deity of wealth and prosperity. But prices of the precious metal, which is widely viewed as a hedge against inflation, have advanced 24% in rupee terms in the past 12 months, driven by conflicts in the Middle East and Ukraine as well as by huge bets by speculators in China, which has eclipsed India as the world’s biggest gold importer. Despite its immense cultural importance in Hindu festivals and weddings, demand for gold jewellery in India fell 6% last year, according to the World Gold Council, compared with the 10% increase in China.”

On the other hand, London Vault Data reveals a small rise in vault holdings in June, +0.7% to 8,599 tonnes (valued at $644.4bn) which reversed the slight declines of the first two months of the quarter.

Silver

Whereas gold, obviously, will be the best medal to win at the forthcoming Paris Olympics, in terms of price gain through the first half of 2024, silver (+22.66%) has proved to be the runaway victor. Furthermore, unlike gold where the percentage gains slowed in Q2 (+2.93%) by comparison to Q1 (+6.72%), silver accelerated rapidly, generating gains of +14.50% in Q2 compared to +2.48% in Q1.

Admittedly, silver’s highpoint during Q2 of $32.010 – the highest price for the metal since December 2012 – was attained towards the end of May, and the price declined by $2.64 (or 8.25%) to the end of the quarter, but the overall gain is still notable.

At least part of the gain in the silver price may be explained by a continuing shortage of the metal. According to the Silver Institute, quoted by Reuters in April, the global silver deficit is expected to rise by 17% to 215.3 million troy ounces in 2024 due to a 2% growth in demand led by a robust industrial consumption and a 1% fall in total supply.

Among other factors, this deficit has been prompted by a rapid drop in reported Chinese stocks, which historically was a surplus market due to silver production from imported base metals concentrates. “However, the breakneck rise in local industrial demand (of 44%) is changing the local supply/demand and inventory dynamics,” said the Silver Institute report.

Retail investor demand for silver is also making an impact, particularly in the US where, for example, from March this year Costco began to sell the metal, in the form of packs of 25 x 1oz Canadian Maple Leaf coins, pricing the offer at about 12.6% above the prevailing price. Figures vary about how much metal has actually changed hands over Costco’s counters, but one thing is certain – the original Wednesday, 13 March price (in the US) of $679.99 (equivalent to $27.20 per ounce) no longer maintains given it’s not pegged like the flagship price of the Costco hotdog and soda which continues to be $1.50, the same as it was in 1985!

Meanwhile the amount of silver held in London vaults continues to rise since a recent low in February 2024 (up 3.23% from February to the June figure of 840,297oz).

Gold - Q2 2024 2024 First Half
Performance 1 Apr - 28 Jun +2.93% 3 Jan - 28 Jun +12.34%
Price High - 20 May am $2444.35 Price High - 20 May am $2444.35
Price Low – 2 Apr pm $2264.50 Price Low – 14 Feb pm $1985.10
Low/High Range 7.94% Low/High Range 23.13%
Weekly Volume high 251.3 mn toz Weekly Volume high 251.3 mn toz
Weekly Value high $586.9 bn Weekly Value high $586.9 bn
Average Daily Volume 43.3 mn toz Average Daily Volume 41.8 mn toz
Average Daily Value $101.3 bn Average Daily Value $92.5 bn
Silver - Q2 2024 2024 First Half
Performance 1 Apr - 28 Jun +14.50% 3 Jan - 28 Jun +22.66%
Price High - 29 May $32.010 Price High - 29 May $32.010
Price Low – 2 Apr $25.650 Price Low – 14 Feb $22.085
Low/High Range 24.80% Low/High Range 44.94%
Average Daily Volume 413.2 mn toz Average Daily Volume 8.539 mn toz
Average Daily Value $11.9 bn Average Daily Value $10.5 bn