May 2022 MarketUpdate

Precious Metal Prices

May opened with a gold price of $1,857.90, and although it steadily increased during the first week of trading, the price struggled to find a footing above a high of $1,895.20. By the beginning of the third week of May, the price had decreased to $1,805.80 – a decline of 2.8% since the start of the month. This drop was said to be due to a consistently stronger US dollar following a significant sell-off in previous weeks.

As the price had sat firmly above the $1,900 barrier throughout much of April, even hitting a high of $1,976.75 by mid-month, continued declines from these highs could mean further decreases as we progress through the month.

Despite some of the apparent highs seen during April, gold finished the month down almost 2%, which spells the second monthly loss since the start of the year. Comparatively, the dollar index, a measure which benchmarks USD against six other major currencies, rallied 4.6% during April – the most since January 2015.

Similar decreases were seen across many precious metals, including platinum which fell to $938 during AM trading on 16 May - the lowest price seen this month and a notable decrease from a high of $992 seen during the first week of May. The platinum price was said to be affected by disappointing manufacturing and sales data, particularly from the automotive industry and especially in China where recent lockdowns are contributing to an ongoing dampened demand.

Sanctions and Economic Tariffs

In an effort to continue to apply pressure on Russian economic activity, towards the middle of the month the UK announced it intends to increase tariffs on platinum and palladium imports from Russia and Belarus. These import tariffs mean that import duty on a wide range of products, including these key PGMs (platinum group metals) would increase by 35%. This also has implications on the export of goods as certain products, including industrial chemicals, plastic, rubber and machinery to Russia will be banned in due course. As previously stated, Russia is one of the key worldwide producers of platinum group metals, so it is unclear what impact tariffs would have on supply, demand and the subsequent price paid by investors.

Inflation

The increased focus on the US dollar during May was initially in anticipation that the US Federal Reserve was planning to adopt a higher rate regime for the remainder of 2022, and perhaps even throughout 2023. This move by the central bank was aimed at curbing the rate of inflation in the US where recent analysis suggested that it was said to be growing at the fastest pace in over four decades. A similar situation continued to unfold in the UK, where increases are currently set to around 7%, which is said to be the highest in over three decades.

As a result, it was widely predicted that the US central bank would raise interest rates by 0.5% on 4 May, with some suggesting that 0.75% would be more suitable if the Fed was to take inflation seriously. As a result, rates were raised by half a percentage point - the largest increase since 2000 - with Fed Chair Jerome Powell suggesting that "There is a broad consensus (among Fed policymakers) that additional (half-point) rate increases should be on the table at the next couple of meetings."

But Powell did go on to suggest that despite some predictions, Fed officials have no plans to boost rates by three-quarters of a point at any meeting, declaring it's "not something (the Fed's policymaking committee) is actively considering."

In response to ongoing pressure and coverage of inflation, President Joe Biden announced that this is his ‘top domestic priority’ in a speech to White House delegates on 10 May. As part of this, Biden laid the blame for spiralling costs firmly on both the impact of the pandemic and the ongoing war in Ukraine. “I want every American to know that I’m taking inflation very seriously and it’s my top domestic priority,” Biden said.

Similar efforts to curb inflation were seen in recent weeks from the Bank of England, where the interest rate was increased by 0.25 percentage points to a 13-year high of 1% at the start of May. Despite this, Michael Saunders, a member of the Bank of England’s rate-setting monetary policy committee commented that inflation was “uncomfortably high” and that the recent increase in energy prices will hit those on the lowest incomes the worst. His comments were echoed by Andy Haldane, the Bank of England’s former chief economist who said that high rates of inflation could stick around for years rather than months.

Despite comments like this, the Bank of England still suggests that although the measure for the annual rise in living costs could breach 10% later this year, it was likely to fall back to their 2% target within three years as the shock of both Covid-19 and the war in Ukraine gradually fades.

International Gold Demand

The ongoing effects of Covid-19-related lockdowns in China, one of the world’s largest consumers of gold, continue to be seen in the decline in demand for precious metals across the region. Recent reports from the Shanghai Gold Exchange (SGE) showed that withdrawals from the exchange were the lowest since April 2012. However, despite a decline in March, China’s gold imports in the first quarter of the year were significantly higher than the same period in either 2020 or 2021.

There are also some reports suggesting that India may be seeing a resurgence of Covid-19 infections in recent months, as new variants begin to emerge and spread. As India is the world's second largest gold consumer, a decrease in demand across the region, coupled with a decrease from China, could have a knock-on effect in the coming months on the gold price internationally.

The World Gold Council suggests that, although in the short term demand is likely to be impacted in China, if the country chooses to adopt accommodative policies to support and boost economic growth in the months ahead, this could benefit China’s gold consumption as a result.

Cryptocurrency

Cryptocurrency markets initially surged following the interest-rate hikes in the US by the Federal Reserve as Bitcoin rallied to a weekly high of $39,669.50 on 4 May. This increase was short-lived though, as the price plummeted to a low of $28,989.40 just a week later on 11 May – a decrease of nearly 27%.

A recent report by Glassnode, a block chain data and intelligence provider, concluded that 40% of Bitcoin wallet holders have now lost value on their initial investments. Following this report, CNBC commented that Bitcoin’s close correlation to the Nasdaq challenges the argument that cryptocurrency functions as an inflation hedge. Towards the middle of May, Coinbase, the largest cryptocurrency trading platform in the US, posted net losses of $430 million, far worse than analysts were expecting. This sudden news sent share prices in the company down 15.6% overnight.

Whilst the outlook for many may be optimistic, continued regulatory pressures from governments across the world are expected to impact trading platforms and cryptocurrency asset classes alike in the coming months. The upcoming ‘Economic crime bill’ announced in The Queen’s speech recently targets economic crime as well as those individuals who use crypto assets to conduct fraud and scams. This wider regulatory pressure could further impact the appeal, and value, of cryptocurrency.