January 2022 Market Update

Gold and Silver Prices

2022 opened with the gold price sitting firmly above the $1,800 a troy ounce barrier, even reaching a high of nearly $1,850 in PM trading by the end of the third week. The month closed, however, with the price at just over $1,788, the lowest we saw throughout January after covering a range of 3.3% during the month.

Silver opened the month at $22.89 and closed on $22.50 – a decrease of 1.7%. Although there was little movement between the figure at the start and end of the month, the price had previously reached highs of $24.32 by the third week, which was an increase of over 6.2% compared to the opening figure.

Inflation and the USA

Following reports in December that the US Federal Reserve (Fed) was signalling the possibility of quicker interest rate increases, towards the end of January, the Fed confirmed that it would begin a series of hikes in March. These hikes were said to be in direct contrast to the pandemic-era policies designed to fuel hiring and growth. As chair, Jerome Powell confirmed the news of the upcoming rise; he also sought to calm fears by suggesting inflation had gotten ‘slightly worse’ since they last met and that any changes would be designed to prolong growth and keep unemployment low. “I think there is quite a bit of room to raise interest rates without threatening the labour market,” said Mr Powell.

Fresh concerns around inflation were a key topic of discussion throughout the month, with the US consumer price inflation index rising 7% in recent months, the steepest climb in prices since 1982.

India

January saw continued signs of economic recovery and a return to gold purchases in India. This was following a recent report suggesting that imports of gold into India had more than doubled in 2021 when compared to the previous year. Continued pressure to lower the gold price through retailer discounting, coupled with a surge in wedding gold demand boosted the appeal. Total spending in the region amounted to $55.7 billion in 2021, far exceeding the $22 billion spent during 2020.

PGM Group Metals

Fuelled by an ongoing shortage of semiconductors, automotive production continues to be affected which is putting pressure on the prices of platinum group metals (PGMs). Due to their unique chemical properties, PGMs are used extensively in the automotive industry, most notably in catalytic converters. The uncertainty surrounding automotive production has meant that PGM prices decreased in the second half of 2021 and continued to remain low towards the end of the year.

The impact of the semiconductor shortage has been felt across the industry, with Volvo reporting that production had fallen by 50,000 units in July to September, while Volkswagen reported a decrease of 1 million units globally.

In contrast, a recent report by the World Platinum Investment Council defended the metal, stating that although demand for platinum in the automotive industry has decreased, industrial demand has grown at twice the pace of global GDP since 2013 and is the second-largest demand segment after automotive.

Central Bank Gold Purchases

The start of January saw another update from The World Gold Council regarding purchases of gold by central banks across the world. As significant holders and purchasers of gold, movements of the precious metal amongst the banks are closely monitored in order to understand how they are using gold to manage their reserves.

Due in part to a significant sale by Uzbekistan, official gold reserves fell by 21.5 tonnes in November 2021 – the first monthly decline since January of the same year. Whilst the largest decline was due to Uzbekistan, Turkey, Russia and the Kyrgyz Republic were all notable sellers. However, as previously reported, there were large purchases by India of over 40 tonnes, as well as other purchases from Brazil and Russia.

Also notable was a report by Bloomberg from the Irish Central Bank, which added 78 million euros ($88 million) of gold to their reserves in November. Coupled with other purchases in previous months, the institution has increased their holdings by more than three tonnes in as many months. When approached for comment, the bank refused to offer clarification for the purchases, simply stating that the information was commercially sensitive.

The World Gold Council

Towards the end of January, the World Gold Council released their Gold Demand Trends report for 2021, offering an insight into the demands and buying behaviour across a variety of sectors. In general, the report made for positive reading, stating that annual demand for gold had recovered across virtually all sectors. This increase was said to have recouped much of the COVID-related losses sustained during 2020 as gold demand hit the highest level in more than two years. In addition, gold bar and coin investment reached an eight-year high in 2021 with inflation concerns seen as a key driver, especially in the US and Germany which also saw record demand.