LBMA Releases Market Review Q4 2021

Gains in both the gold and silver price in Q4 2021 offset, but did not reverse, negative performance through the year. In short, gold gained 3.67% in Q4, but overall lost 5.73% in 2021, to end the year at $1,820.10. The equivalent silver figures were +4.35% (Q4), -15.35% (2021) and $23.085. These declines brought to an end the strong gains achieved by both metals in 2019 and 2020.

At an average 28.4m oz per day, gold trading volume was relatively low in the quarter, some 3.1% below the average for 2021 as a whole.

From a five-year perspective, 2017-2021 (see table below), gold and silver have continued to demonstrate their importance within investment portfolios, with gold up 58.46% with gold up 58.46% and silver up 44.73%, a compound annual growth rate of 9.65% and 7.77% respectively.

The positive and negative drivers of prices during Q4, 2021 were similar to those experienced throughout the year: economic recovery (particularly in the US) from the pandemic-induced collapses of 2020, the international vaccine roll-out programme, diminished but increasing retail purchases by China and India. However, the last months of the year also brought the spectre of western world inflation to the fore, and arguments about the meaning of the word ‘transitory’ (actively discussed in the opening panel discussion of the LBMA/LPPM Virtual Precious Metals Conference in September), were frequent.

The impact of inflation, and another affirmation of gold’s role as an inflation hedge, was most clearly demonstrated in November when, for the 12 trading days between Friday, 5 - Monday, 22 , gold priced at over $1,800, jumped nearly 2% to $1,859.40 as the US Consumer Price Index revealed annualised inflation running at 6.2% with some economists predicting an ongoing rate closer to 7%. Both gold and silver reached their Q4 highs on Tuesday, 16 November with $1,872.25 and $25.270 respectively.

A further demonstration of the link between the gold price and inflation was provided by the World Gold Council in a study of the Indian gold market where, it was reported, that on average a 1% jump in inflation leads to a 2.6% increase in retail gold purchases, whereas a 1% fall inflation discourages buyers by 1.2%.

Balanced against the positive price impact of inflation, and causing gold to trade in a much narrower range during the quarter than through the earlier parts of the year, were other US Federal Reserve announcements about tapering the bond purchase programme and, separately, signalling future rate hikes. The second of these had a material impact on the strength of the US dollar which, in turn, impacted the gold price given the significant negative correlation between the two (see graph).

Beyond the US, gold purchases by central banks occurred with some regularity with Russian reserves growing to be among the world’s five largest and Singapore buying for the first time in decades. The Polish central bank announced it was likely to be building gold reserves throughout 2022.

Finally, it should be noted that the highest gold trading volume in the quarter (40m oz) was recorded on Wednesday, 13h October, the day Reuters reported that London Metal Exchange banks were giving up supporting that exchange’s gold and silver futures project.