Precious Metals Prices
February opened with the gold price hovering around the $1,800 mark, and it briefly fell below this crucial barrier to $1,799.85 in PM trading on 1 February. However, the price quickly regained ground in the first few days of the month, driven by ongoing concerns around inflation, a weakening US dollar and increasing geopolitical tensions.
By the start of the second week, the price rallied through the $1,850 barrier and continued to rise to a high of $1,968.35 in AM trading on Thursday 24 February, as the devastating extent of the Ukraine crisis became known, and investors turned to gold for its ‘safe haven’ properties. This represented a range of over 9.5% from the lowest to the highest prices measured.
The silver markets also saw some volatility, with a price ranging from a low of $22.36 at the start of the month to a high of $25.31 on 24 February; a range of over 13%.
Although much emphasis was placed on gold and silver price fluctuations throughout the month, other precious metals, most notably the PGM (platinum group), also saw increased volatility. Palladium was a notable example, as prices throughout the month ranged from a low of $2,224 on 11 February to a high of $2,680 towards the end of the month – a range of over 20.5%. As the world’s largest producer of palladium, and the second-largest producer of rhodium, Russia is a key source of many PGMs. As such, ongoing tensions could affect the price in the coming months. Some market commentators are suggesting that this could lead to a supply deficit of key PGMs.
These movements are a reversal of fortune for palladium, which has been performing negatively in recent months. As much of the industrial use for the metal is in vehicle catalytic converters and the automotive industry, the ongoing semiconductor shortage, which has led to a reduction in vehicle manufacturing, has heavily affected the price.
Russia and Ukraine
Towards the end of February, following the military action by Russia on Ukraine, markets reacted as expected. Coupled with the increase in precious-metal prices, oil surged past $100 a barrel, natural gas increased by 73% and global markets plunged in response.
In London, the FTSE 100 closed 3.9% down as the value of the constituent companies plunged by around £77 billion. This represented the largest percentage decrease since June 2020. Internationally, the CAC index and Germany’s DAX were both down by nearly 4%. Interestingly, the value of Bitcoin also slid by 8% during the day.
On Wall Street, stocks opened lower but later recovered to end the session higher. This rebound was in response to western leaders’ comments around tough new sanctions on Russia.
Central Banks and Gold
According to the most recent data released by the IMF, an increase of 14.2 tonnes in official central bank gold reserves was recorded in December 2021, with notable purchases from Turkey and Uzbekistan. Closer to home, the Central Bank of Ireland’s gold bullion reserves also increased in December and now stand at 9.5 metric tonnes. This was the fourth consecutive purchase by the bank in recent months.
The Russian Central Bank has also increased its holdings in recent years, now reportedly standing at $10 billion – a stark increase from the $2 billion recorded in 1995.
The recent Gold Demand Trends report, published by the World Gold Council, reported a sharp rise in demand for gold jewellery in India, with demand almost doubling compared to 2021. These levels of demand were reported to be the highest in six years. Although many Indian consumers are still turning to gold for jewellery and investment, the sudden price increase towards the end of the month led to bullion retailers offering some of the highest price discounts seen in nearly 18 months.
Towards the end of February, dealers were offering a discount of up to $18 an ounce on official domestic prices – inclusive of the 10.75% import and 3% sales levies, up from the previous week’s discount of $5.50. Price and premium discounting is a tactic often used by retailers in India to encourage purchasing and increase demand in the region.
In 2021, China recorded a 56% year-on-year rise in gold consumption, marking a strong comeback since its decline during 2020, and a trend that is predicted to remain strong in the coming months. As recorded by the World Gold Council in a recent market analysis, despite concerns around a potential slowdown of China’s economic growth, there has been an increasing interest in gold jewellery among young consumers. Greater pricing transparency, coupled with the endeavour of local commercial banks to sell physical gold products, are predicted to be key drivers of demand in the region in the months ahead.