Abstract Tech

LBMA Precious Metals Market Volumes, July 2024, and Their Significance

StoneX
StoneX Contributor

Rhona O’Connell, StoneX Financial Ltd; 14 August 2024

Any views expressed here are of the writer and do not reflect a house view from NASDAQ.

Daily July average compared with daily average for H1 2024

LBMA July 24 Graph 1

Source: LBMA

LBMA July 24 Graph 2

Source: LBMA

Welcome to our monthly round-up of the LBMA OTC trading volumes in gold, silver, platinum and palladium, as recorded on a daily basis by the Association.  These are split into spot, swap/forward, options and LoanLeaseDeposit (LLD) and give a flavour of the markets’ activity and how they were influenced by external forces and news items.

All references to COMEX or NYMEX positioning refer to Managed Money, not commercial positions.

General introduction -

Spot gold gained 5.5% in spot price over July to $2,448 and posting new intraday highs in the process, while silver lost just less than 1% after a roller-coaster rise and spending much of the month on the defensive.  Platinum was on the back foot in the second half of the month to lose a net 1.8% overall to $979, while palladium had a shocker, falling through the month and closing 5.5% lower at $929.  Uncertainty about the economic outlook in Europe and China were key drivers behind the falls in the more industrial metals, and were equally responsible for the improvements in gold (along, of course, with continued fretting over the likely path to be taken by the Fed).  The above table is instructive on this basis as the jump in LLD activity in gold clearly points to producer hedging, and the fall in silver forwards reflects the market’s unprepossessing activity.  The stand-out in platinum is the gain in forward activity, which is most likely to reflect equipment change-out in in-industrial usage, while the gain in palladium forwards may reflect some industrial activity – quite possibly on both sides of the market.

Among the most interesting feature this month is that all of the heaviest days in platinum spot trading were days when the market closed lower than the open, in some cases by a wide margin.

GOLD – new highs as the markets look to the Fed with plenty from the FOMC and clear signs of a cooling labour market in the States

July saw spot turnover beating that of the first-half-year by 19%, at 28.7M ounces, or 739t. The action in the derivatives, with gold breaking new highs, was up by a lot more, with swaps and forwards 31% ahead, options up by 38% and LLD, 40%.

The first few days of July were centred heavily on the Fed, with the release of the FOMC Minutes for the June meeting, followed swiftly by the NonFarm Payroll numbers and then Fed Chair Jay Powell at a central bank meeting.  Then there was the assassination attempt on former President Trump on the campaign stump, followed almost a fortnight later by President Joe Biden standing aside from the Presidential race.  Rising tension in the Middle East was also supportive, while some market observers again drew attention to the fact that the People’s Bank of China had not reported any change in gold reserves (although as we have noted before, history does show that the People’s Bank can go quiet on this subject and subsequently announce big changes, which clearly implies a gradual accumulation of metal behind the scenes.  It may well be that purchases have stopped, but we cannot be certain).

Overall volumes and spot price; July

LBMA July 24 Graph 3

Source: LBMA

The June FOMC Minutes recorded participants’ concern over the impact of high prices on purchasing power but noted also that continued disinflation was supported by easing labour and the lagged effect of monetary tightening and that policy was now “well-positioned” to deal with risks to achieving the dual mandate.  Jay Powell also said at the start of the month that there had been “quite a lot of progress” in containing inflation and he acknowledged the risk of cutting too late (thereby helping gold up towards $2,360). This background set the scene for a weak nonfarm payroll to give gold the boost that the bulls had been looking for and on Friday 5th it jumped to test $2,390 before momentum faded, possibly helped by Mr. Powell urging caution again and retreating the Committee’s desire for more data sets pointing to the effects of the Fed’s restrictive policy.

The FOMC Dot Plot, June 2024 (each dot represents a member’s estimate of where the fed funds will be at the end of each year)

LBMA July 24 Graph 4

Source: Federal Reserve

This was just before the attack on Mr. Trump and the ensuing upheavals in the Presidential  campaign – which was then extended by Mr. Biden’s standing down on 21st July. In the intervening two weeks gold climbed to the intraday record of $2,484 on the 17th, influenced predominantly accelerating professional buying in anticipation of a Fed cut in September, aided of course by simmering geopolitical tensions and uncertainty; also Mr. Trump’s post-attack strength in the polls had some influence, on the basis that his economic policies could potentially be inflationary given his vigorous pro-industry stance and favour of higher tariffs.

Helped by improving technical construction on the charts gold reached its highs despite comparatively strong US economic numbers.  Momentum then faded, Mr. Biden stood aside and gold traced out a Fibonacci 38.1% correction as it entered a period of consolidation as investors, at the least, stood aside to see how and to what extent Kamala Harris would reshape the campaign.

As far as market activity is concerned, the highest turnover in spot was, as we have noted so many times before, as the price crested its highs and then went into mild reverse.  The 16th, the day approaching the peak, saw spot turnover of 37.6M ounces (1,171t) followed by 38.5M ounces (1,199t) on peak day.  The following day was also strong at 31.1M ounces (967t). Take out these three days and the July spot average daily turnover was 27.6M ounces, but even that would have been 15% higher than the first half of the year.

Gold technical pattern;  one-year view

LBMA July 24 Graph 5

Source: Bloomberg, StoneX

Swaps and forwards gradually picked up volume over the month, starting at 6.4M ounces (262t) and closing with 14.1M ounces (438t) and this would tend to suggest that the supply side was hedging into the price decline with a view to locking in attractive levels and in the possible fear of a bear market.  Volumes were particularly lively as prices broke below $2,400 and then two days later, when it broke above it again.  Options were at their liveliest in the week on the run—up to the peak, which suggest either targeting $2,500 or $2,400 – or both.  Positions established, volumes dwindled in  the final week when ranges were narrow, between $2,350 and $2,400 until the final day, when gold  again pushed through $2,400.  The LLD sector, although it was 40% higher than the first half-year, didn’t in fact come to life until mid-month with one of the busiest days coming at the top of the market, which will not come as a surprise as it could well have contributed to stemming the rally, similarly, to swaps and forwards, there was increased activity towards the end of them both, which could easily have been defence tactics. The last day of the month saw a big jump to 4.1M ounces or 126t, suggesting that as gold pushed through $2,400 it would be prudent to close the month with some book-squaring,

Gold in local currencies; year-to-date

LBMA July 24 Graph 6

Source: Bloomberg, StoneX

In the background the Indian Government cut the tariffs on gold and silver imports from 15% to 6%, which has generated some lively buying – and it also eradicated the fraudulent practice of importing platinum alloys of minimum 80% gold and 5% platinum, which had previously been commanding 6% tariffs; these were then being melted, recast into old bars and sol not as if the 15% tariff had been paid.  (Gold doré tariffs were cut to 5.35% from 14.35%).  Elsewhere in the markets the new price range had reduced physical demand in the Asian markets, although this will be rekindled as purchasers become used to the new range.

In the background the gold ETFs found some wary support with net creations of 48.5t and demand re-emerging in North America and Europe, rising by 26t (1.6%) and 17t (1.3%) respectively.  Asia continues to expand from a low base, adding 5.4t, or 3.0%.  On COMEX, unsurprisingly, gross longs expanded from 522t to 673t in the first two weeks and then retreated to 577t by month-end.  Shorts increased into the price rally also, and then there was a reversal as some shorts were covered in on the way down, probably suggesting that the resilience of the $2,350-$2,400 band was strengthening.

In the background gold Exchange Traded Products were mixed, but with an overall inflow of 17.5t.  North America was a net seller (8t) while Europe added 18t and Asia, seven.  At month-end holdings were 3,106t (global mine production is roughly 3,750t).  On COMEX the outright Managed Money positions fluctuated narrowly and ended up just one tonne higher than at end-May, at 544t; shorts contracted from 80t to 51t, leaving the net long at a market-neutral long position of 277t.  The outright long was 25% higher than the twelve-month average, which is a little toppy but not extravagantly so.

SILVER - a precious metal on the way up, a base metal on the way down

Silver’s trading volumes saw two of the busiest days in spot coinciding with those of gold, when gold was preparing to push to fresh highs and silver, conversely, was about to turn down.  In actual price terms silver had outperformed gold in those first few days, but then increasing economic uncertainty benefited gold but worked against silver and it failed to challenge resistance at $32, peaking at $31.75 on the 11th which tend out to be the second-busiest day in the forwards, suggesting hedging.  The other very busy day was the 25th; the previous day silver had dropped below $29 and on the day in question the key moving averages crossed in bearish fashion with the 10-day dropping below the 20-day and the 50-day. Silver dropped by 5% in heavy volume, not just in spot, but in options as well as swaps and forwards.

On the way up in the first few days of July silver had behaved in its time-honoured way, gaining 6.8% against gold’s 3.5%; by the time gold peaked they had made the same percentage gain (6%) and thereafter they both corrected but gold’s slippage was 4.2% while silver was 10.9%.  To a certain extent silver was obeying its own historical rules – falling more sharply than it rises (apart from short-covering rallies, which can be vicious).

Total silver volumes; June, M ounces

LBMA July 24 Graph 7

Source: LBMA

Silver was, as usual, more volatile than gold, gaining more ground at the outset and losing a lot more on the retreat.

Silver, gold and copper; the correlations and the gold:silver ratio, January 2020-to-date

LBMA July 24 Graph 8

Source: Bloomberg, StoneX

Silver’s correlation with gold averaged 0.85 in January to June but in July it was 0.80.

Silver’s correlation with copper was 0.46 in January to June and 0.75 in July.

Market activity: we have already discussed spot volumes, which were generally bland across the month apart from being punctuated by those flurries of activity. Silver’s heavy forward activity on the day before its peak looks like technically triggered activity on that day of the hard fall towards month-end was almost certainly technically-triggered and that, especially when added to the option activity (likely targeting $30) and likely delta hedging, would have contributed to the size of the fall.  Activity in LLD only sprang to life in the final week would as silver was starting to recover towards $29 and may well have reflected hedging activity.  Bear in mind here that only 28% of silver mine supply is primary product so it would be no surprise of base metals producers have been hedging into prices in the upper $20s or low $30s./

Silver’s demand profile has a dual nature (typically 60% of demand – excluding ETPs) is industrial; the rest is in the form of jewellery, silverware and OTC investment.  If we strip out OTC investment, which can be very variable, then jewellery and silverware have over the past five years comprised 29% of global fabrication demand.

Given the increasing uncertainty over the potential for a sturdy recovery in the Chinese economy and the continued deterioration in economic sentiment in Europe, silver’s retreat reflected the economic outlook and its implications for demand – exacerbated by market chatter about Chinese overcapacity in solar and heavy European inventory accordingly.

PLATINUM – all the heavy volume days were selling days

Spot daily average volumes in July were 9% higher than for January-June and the interesting feature here is that the days that traded the heaviest spot volumes were, apart from the reversal at the lows, all days in which the price closed below the opening level, in some cases by a wide margin. The implication is that the market has been through a clear-out, which possibly paves the way for a recovery ahead.

Total platinum volumes; June, 000 ounces

LBMA July 24 Graph 9

Source: LBMA

Platinum July peak came early in the month, trading up to $1,036 on the 5th and then reversing for what looked like a week of consolidation either side of $1,000 in light spot volume, but every approach to $1,020 over that period seemed to come activity in the LLD sector in increasing volume, and joined latterly by higher volumes in the swaps and forwards. There was anecdotal evidence of industrial selling and sentiment deteriorated with the result that one final push up towards $1,040 in mid-month proved to be a failure and the 17th, which coincidentally was gold’s peak, triggered heavy activity in all sectors apart from options.  This pushed prices down to $930 before bargain hunting appeared and took prices up to $980 by month-end.  The rally kicked off on good spot volume and options volumes ($1,000 target?) and there was an increase – although not much of one – on swaps and forwards suggesting some forward buying from industry.

As we noted last month, and which is worth repeating, the shift to the right in the European Parliament elections has thrust electric vehicles back into the spotlight (not that they have left it recently).  In particular, with some deadlines already starting to slip, and with the onward march of hybrid vehicles as opposed to purely battery-driven (which is theoretically of benefit to the PGM as hybrid vehicles include an ICE engine, and with heavier loading than the engine in an ICE vehicle), a new law is proposed in the EU that will effectively ban the production of ICE vehicles as of 2035.  This though is meeting political opposition, notably in Germany.

Platinum, palladium and the ratio; January 2016 to date

LBMA July 24 Graph 10

Source: Bloomberg, StoneX

Meanwhile Anglo American Platinum released its interim results in late July, posting a 9% increase in refined platinum output year-on-year due to a larger release of work-in-progress inventory than in H1 2023, but a 1% fall in palladium.  Sales volumes of PGE overall increased by 9% due to a drawdown of inventory. and maintained its guidance for refined production for the full year of 3.3-3.7M ounces of PGE (103 – 115t).

Exchange-Traded Products saw a more-or-less equal number of days of creations and redemptions, but the sellers had the upper hand, resulting a net loss of 0.75t over the month to a total of 105.5t.

NYMEX saw substantial liquidation from the Managed Money longs, which fell from 50.3t to 41.1t by 23rd July, with fresh longs re-established amid bargain hunting at the end of the month, rising to 43.3t.  Shorts expanded from 26t to 38.3t by month-end (and continued to expand in early August).

PALLADIUM - even more massive shorts - probably reflecting physical position management

As we note every month, palladium remains under a cloud and is likely to do so for the foreseeable future, although the slowing in EV inroads into the ICE sector, in favour of hybrids, as noted above gives the PGMs some relief in the short term.  We have been arguing that a combination of price discovery, lack of infrastructure and consumer resistance could undermine the targets for net zero.  The EU has postulated net zero carbon for 2035 – although it is to conduct a review in 2026 that may result in a push-back in dates, and the wrangling over the political and environmental issues discussed in the platinum section are even more relevant when it comes to palladium, given that the auto sector is responsible for 80%+ of palladium industrial demand. According to the International Energy Agency, emissions from automotive vehicles comprise 13% of the global total.

Palladium spot volumes; April, 000 ounces

LBMA July 24 Graph 11

Source: LBMA

Palladium had rallied fallen and rallied again in the second half of June and that latter rally continued onto early July with post prices hitting a ten-week peak of $1,058 on the 3rd, which was the fifth consecutive day of gains.  That last day posted the second highest spot volume of the month (behind the 22nd, which was a day of a narrow range as the market saw some bargain hunting). Derivatives were quiet across the board in this early part of the month.

Spot platinum, palladium and the spread; January 2016 to date

LBMA July 24 Graph 12

Source: Bloomberg, StoneX

A bear run ensued right the way through to the 30th, with tentative support developing in the final week at $900 (a big wash-out developed in early August that laid the foundation or some minor strength).  The heavy spot volumes late in the month went through in narrow ranges (which is not unusual) as the market wrestled with itself about the next direction and this was augmented by high volumes in swaps/forwards, suggesting also that there was forward activity developing as $900 was showing support.  Option activity picked up right at the end of the month, which may have helped to prompt the moth-end rally .  Activity in LLD was largely confined to the second week of the month, when the $1,000 level was in play, which may suggest some hedging of by-product mine production.

Exchange Traded Products saw net redemptions at the start of July, as the price turned down but the volumes are unlikely to have had a major impact on price performance .Buying interest returned in mid-month but it was patchy and the net result for July as a whole was a drop of 0.25t to 20.2t  the year-to-date change is an increase of 4.15t. Annual mine production is roughly 195tpa.

The CFTC numbers from NYMEX saw yet more short positions, expanding from 61.4t at end-June to 67.4t, while longs added 3.2t to 18.2t.  As we regularly note, the long-term fundamentals for palladium are not good – not as bad as postulated a few months ago, but still not good.  There is undoubtedly the scope for a big, short-covering rally in time, but as yet the market is likely to continue to move into a structural surplus and short-covering is just about tis only hope for a range change.

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