Precious Metal Prices
March opened with a gold price of $1,920.45 an ounce which continued to rise, breaking the crucial $2,000 barrier by the end of the first week. The gold price rally continued to extend its gains amidst ongoing geopolitical tensions and concerns around the resulting risks to global growth in an economy still reeling because of the COVID-19 pandemic.
The silver price and demand were also strong in the first week of March, opening at $24.64 and rising almost 6.3% to a high of $26.17 by the beginning of the second week.
However, with the ongoing negotiation talks between Russia and Ukraine appearing to gain some ground towards the end of the month, investment demand for riskier equities increased and gold fell below the $1,900 mark briefly before finishing the month 1.4% down.
News from The Silver Institute predicted that industrial demand for silver is expected to increase during 2022, most notably due to increased demand for photovoltaic (solar) cells. The institute suggested a 13% rise in demand in this key area and indicated demand may triple by 2030. This increase in industrial demand could potentially have an impact on the silver price in time, especially as investment demand for silver is also on a positive trend.
Central Bank Demand
A recent report by the World Gold Council, which analysed central bank gold reserve data, revealed that during 2022 so far, selling has outweighed buying with reserves falling by 12 tonnes. This is in contrast to a strong 2021, when central banks accumulated 463 tonnes of gold throughout the year. Much of the reported decline in reserves was due to sizable sales from Kazakhstan, Russia and Poland, while other banks, such as Turkey, added over 10 tonnes to their reserves in January.
The report also detailed the results of a survey from central banks that pointed to the key drivers for adding gold to their reserves. In essence, the drivers for demand from a central bank position are similar to those cited by individual and institutional investors, including ‘performance during times of crisis’, ‘long-term store of value’ and gold’s role as an ‘effective portfolio diversifier’.
Although India is traditionally seen as a large consumer of gold, investor confidence and demand for silver are said to have increased across the region in recent months. Some market commentators suggest that silver imports into India reached a seven-year high – over 150 tonnes in February 2022 alone. Although much of the increase was due to investment demand, many suggest that retail jewellery customers could be turning to silver in lieu of gold due to increased prices. In an attempt to increase appetite for gold, discounting is a technique often used by retailers in India, and some of those retailers reported discounts of up to $77 an ounce towards the middle of March. This was reported to be a notable increase from discounts of less than $20 reported during February.
Much like in previous months, prices of the key PGMs (platinum group metals) were volatile throughout the month with palladium, again, a notable example. The month began with palladium breaking the $2,500 barrier as it opened on $2,565, rising to $3,339 by the end of the first week – an all-time high. This 30% increase over a single week was in direct response to mounting concerns that exports from Russia, a top international producer of palladium, could be disrupted by sanctions. Despite the concern, according to the Goldman Sachs Group, shipments from Russia are unlikely to be disrupted unless Russia itself restricts them and they could be easily directed to ports in Asia before being distributed across the world.
After reaching these record high prices, the spot price of palladium corrected itself and decreased to $2,160 before the end of the month, partly due to the Russian and Ukrainian negotiation talks.
Recent reports suggest that UK inflation is rising at its fastest rate in 30 years with the Consumer Prices Index (CPI) rising by 6.2% in the 12 months to February 2022. A March update from the Bank of England suggested that the rate of inflation in the UK is likely to reach ‘around 8% this spring’. Although further increases were said to be expected later this year, the rate of inflation is forecast to fall considerably over the next ‘couple of years’ with a further prediction that inflation will be back to the 2% target in two to three years’ time.
Reports from the US paint a similar picture, with increases said to have resulted in a 40-year high, based on rising petrol, food and housing costs. There are calls for a tightening of monetary policy by both the Bank of England and the US Federal Reserve (US Fed), with some market commentators suggesting that not enough is being done to combat the rising costs for consumers.
In response to this, the Bank of England raised the interest rate from 0.5% to 0.75% towards the middle of March – the third rise since December 2021. This recent correction has raised the rates to their pre-COVID levels and followed a similar rise by the US Fed. In comparison, however, this was the first rate rise in the US since 2018.
Following the rise, US Fed chair, Jerome Powell, said the bank was aware that inflation is something which must be tackled before it becomes an issue. ‘I’m old enough to remember what very high inflation was like,’ he commented. ‘We’re strongly committed as a committee to not allowing this higher inflation to become entrenched.’
The impact of inflation on both the cost of living and your savings and investments is often cited as one of the key reasons to add gold to your portfolio. According to a study by the World Gold Council, during years in which inflation exceeded 3%, gold had returned around 14%.