April and early May precious metals market overview
Gold and silver quotes increased significantly in early April. This was facilitated by a weakening dollar and a decrease in the yield on 10-year US Treasury bonds. The US currency index fell 2% to multi-week lows as rising consumer prices in the US heightened fears of accelerating inflation. Bond yields fell to their lowest level since late March.
In the precious metals market, the correction period ceased, which began in August 2020, when gold was trading at record highs. The growth of quotes is still constrained by the increasing popularity of stocks and cryptocurrencies. However, prices for precious metals continued to increase in the first trading days of May.
According to the World Gold Council, in the first quarter of 2021 there was an increase in demand for bullion, coins and jewelry. Purchases of shares of exchange-traded funds decreased significantly. Central banks remained net buyers of gold. The leader was the Central Bank of Hungary, which in the first quarter acquired more than 60 tons of yellow metal.
Full April Precious Metals Market Report
Gold and silver prices rose in April this year by 5% and 8% in dollar terms, respectively. Yellow metal quotes reached $1767.65, and gray metal - $25.88 per troy ounce. The yield on precious metals for Australian investors over the same period was more modest. As a result of the growth of the Australian dollar to slightly below 0.78 US dollars, gold rose by 2%, and silver - by 5%.
The rally of precious metals was expected, given that their prices fell sharply in the first quarter of this year: by 11% and 9%, respectively. In April, precious metals rose in price due to technical oversold by the end of March and their growing popularity in the eyes of investors.
Factors that influenced the rise in price of precious metals quotes:
1. The real yield on 10-year US Treasury bonds fell from -0.63% to -0.76%.
2. Inflation rose during April, along with rising commodity prices.
3. The Bloomberg Commodity index increased by 8%.
4. The US dollar fell more than 2% against a basket of major currencies, reaching 91.28 by the end of the month.
Risk to the precious metal market is related to the state of stock markets
Global stock markets experienced an impressive rally after reaching lows in March 2020. The S & P 500 index increased by more than 80% over the year. Since April 2021, the market has grown by 5%. Bank of America noted that over the past five months of this year, more than $600 billion was invested in global stock markets. This indicator exceeded the volume of share inflows to gold exchange funds over the past 12 years. Investors have significantly increased their positions in the stock markets. The annual increase in margin debt is now approaching 70%, which is similar to the situation before the collapse of NASDAQ (1998-2002) and the period of the global financial crisis (2008-2011). Thus, in the short term, stock markets are in an upward trend, but there is a possibility of a correction of risky assets. Demand and prices for precious metals will increase accordingly.
High bitcoin volatility
The registration of the American cryptocurrency trading platform Coinbase at NASDAQ in April influenced cryptocurrency quotes. The market capitalization of cryptocurrencies reached $80 billion and exceeded the corresponding figure of many banks and companies providing financial services in the United States.
Bitcoin traded very volatile for a month. Its price at the beginning of April was 63.4 thousand dollars. On April 16, it fell by almost 20% - to 48.5 thousand dollars, and then increased by the end of the month to 53.2 thousand dollars. Other well-known cryptocurrencies, such as Ethereum and Doge Coin, increased in price by 50% and 468%, respectively. Not surprisingly, investors want to invest in risky assets that bring quick returns. However, precious metals are a more stable object of investment. That is why they are better suited for the long-term preservation of wealth.
Precious Metals Market Continues to Grow
According to the World Gold Council, demand for yellow metal increased in the first quarter of 2021. This was due to the following factors:
- The increase in global demand for gold jewelry by 52% year-on-year due to the growth of sales in China by more than 200%. For comparison, the first quarter of 2020 was one of the worst in the history of demand for gold jewelry, since during this period the pandemic and its associated lockdowns caused significant damage to the economies of most of the Asian countries.
- Increased demand for bullion and coins by more than 36% year-on-year. In the first quarter of 2021, about 340 tons of physical gold were bought. During this period, the demand for bullion and coins exceeded the average 5-year indicator by 37%. An increase in sales in China and India was a key factor in the growth of demand for physical precious metals. Western markets also saw high demand for gold, as evidenced by record sales at the Perth Mint at the end of March this year.
- Changes in the attitude of central banks to increase gold reserves deserve attention: the total net gold purchases in the first quarter of 2021 were 95.5 tons. If the trend of demand growth by the main financial regulators continues, then the annual increase in gold reserves will be about 400 tons. Hungary became the main consumer of yellow metal in the first quarter of this year, buying 63 tons. The central bank of the country noted that according to the national economic strategy, gold is considered a protective asset and an effective means of saving in the face of rising public debt and inflation.
Is a major rally in the gold market possible?
The situation in the yellow metal market encouraged investors due to a significant jump in prices. Quotation growth continued in May. Gold is expected to break the $1,800 per ounce mark and approach $1,900. Several catalysts can contribute to this: a fall in the US dollar index and a decrease in real bond yields, as well as a long-overdue correction in equity and cryptocurrency markets.
Consumer demand for precious metals in 2021 was quite high, but there is no guarantee that it will remain so until the end of the year. The volume of jewelry purchases is likely to slow down, mainly due to the expected decline in India due to the large number of cases of coronavirus infection. More than 300 thousand new patients are diagnosed daily in the country, and gold is already sold at a lower price. This trend can continue for a long time.