LBMA Precious Metals Market Volumes: Turnover Figures for November 2021

 Welcome to our monthly analysis of LBMA trading volumes for the major precious metals. 

As usual, there are some interesting patterns to explore. 

There were some similarities in November trends to those of October, in that spot volumes increased for palladium but declined for gold, silver and platinum, while LoanLeaseDeposit volumes increased again for gold, silver and platinum, but declined for palladium. In the other areas, options volumes declined with the exception of gold, as was the case in swaps and forwards.

Gold volumes overall were unremarkable, as indeed was the price trajectory over the month. 

Silver spot volumes were very variable, as they were in platinum, while although there were some very quiet days in palladium, equally there were days when volumes spiked; we look more closely at all of this below.

The usual patterns of high volumes preceding changes in direction, or price corrections, were present in gold platinum and palladium but less evident in the silver market.

GOLD

It was another month of Fed-watching – and with good reason, as tapering was confirmed, and Jay Powell turned more hawkish after his renomination. After spending much of October working gradually higher in the wake of September’s falls, gold spent the last few days of the month and the first few days of November in a correction towards $1,760. One of the highest spot volume days was the 3rd, as it traded downwards in a $30 range in response to the Fed’s statement that it would indeed start implementing the tapering program in December, at a rate of $15Bn per month ($10Bn in Treasuries, $5Bn in mortgage-backed securities). This was a typical knee-jerk reaction, given that the tapering program had been well-flagged in advance, and the high spot volumes were accordingly not matched in the derivatives. Spot volumes averaged 17.2M ounces.

With weak-handed holders shaken out of the market, prices reversed and traded up to the month’s high of $1,877 on the 16th, running out of steam as strong US retail sales further raised expectations of tapering and rate hikes. (Commitment of Traders figures for COMEX also show substantial fresh longs and some short covering on the Exchange over that period). On the way up, the market enjoyed another heavy day on the 10th, trading a $44-range in an “up-day” on the release of the biggest surge in U.S. CPI since November 1990, coming in at 6.2%, with core inflation at 4.6%. On this occasion, the swaps/forwards and LoanLeaseDeposit volumes were high, as the price approached $1,880, five-month highs, suggesting that there was some price-locking activity and forward hedging underway.

By this stage, the spot price was over-extended on a number of technical indicators, and momentum started to fade, only to pick up again strongly with the record spot volume for the month coming on Nov. 22, the day that Jay Powell jolted the markets with his new more hawkish tone and allowing that inflationary forces might not be so transitory after all. Gold didn’t drop by as much as some other asset classes (notably silver, see below) and spent the rest of the month consolidating in price between $1,780 and $1,820. What was interesting, though, was that on the day following Mr. Powell’s stance adjustment, volumes surged in all the derivatives, again suggesting a rush to lock in high prices for fear of a change of trend – but also option activity may have reflected the desire to start taking action before interest rates start to rise -even though that would be several months ahead. The picture was similar towards the end of the month as gold started to slide below $1,800, prompting further hedging activity.

SILVER

While silver spot volumes were down 26% in October and against the nine-month average, they were down a further 25% in November against the ten-month average. This is largely because, with gold watching the Fed like a hawk but only trading in narrow ranges, silver’s notoriously fickle nature meant that some would-be market participants were sitting firmly on their hands. Generally, silver did trade in line with gold, but the range for the month, at 10.2% ($23.0-$25.4), was only 1.5 times that of gold (6.7%), compared with the more normal ratio of at least 2:1. Swaps/forwards were down 19%, and options fell 16% as the markets deliberated what the next trend would be, but LoanLeaseDeposit activity was up 24%, suggesting hedging activity, most likely from the base metal miners.  

There was a further external factor that has seen market elements hold off, the cost of freight. With freight rates from China to the West Coast, for example, rising by a factor of ten over the first ten months of the year and freighter space virtually impossible to come by, some silver has been flown between the point of sale and point of delivery, and this is expensive. It is likely that, where possible, buyers are holding off where they can. With the continuing expansion of the solar sector, in particular, this may not be for much longer.

There were three days of very strong business in the spot market, without which average volumes would, at 150M ounces, have been 29% below the ten-month average. 

The busiest day in spot, which was also the busiest in the swap/forward markets, coincided with the busiest day for gold and the derivatives, i.e., the day after Jay Powell’s pivot. Here, too, we can assume that this was hedging.

Perhaps of more significance, given that it wasn’t related to gold price action, was the heavy volumes that went through in swaps/forwards and options in the second week of November. This was as silver pushed from $24 briefly through $25, a psychologically important level and three-month highs. Then as prices held above $25 for a few days, the LoanLeaseDeposit volumes picked up, so all three patterns suggested industrial hedging. Finally, towards the end of the month, LoanLeaseDeposit picked up again as silver started to slither lower, suggesting some nervous selling and possibly technically driven shorts as sentiment deteriorated on the back of the announcement of the Omicron virus.

PLATINUM 

Hobbled to some degree by the persistent semiconductor chip supply dislocation, platinum ran out of steam in mid-November. To put this into a longer-term context, platinum had been in a relentless bear market from $1,340 in February down to $904 in late September and then sustained a 40% correction up to the mid-November peak of $1,105. By the end of the month, most of those gains had been given back after a fall that started in mid-month. The major one-day fall actually came a couple of days before the announcement of the Omicron variant. The trigger for the fall was likely to be a combination of flat vehicles sales as well as platinum being heavily overbought by this stage and profit-taking set in (here, too the CFTC figures show that trading in the exchanges saw heavy long liquidation and a big increase in shorts in the week from the 16th to 23rd, underlining the nervous sentiment in the market).

As far as specific highlights are concerned, the first heavy days of spot trading, in a month where the average was just 4% below that of the first ten months of the year, were on the 3rd and 4th, in which the $1,050 level was putting up stiff resistance and attempts to breakthrough were foiled. 

Apart from some heavy options trading at the start of the month, the derivatives volumes were not out of the ordinary, so this spot volume can most likely be attributed to speculative activity.  

The upward correction that ran through to the 16th was similarly relatively mundane in terms of spot volumes, although it is noteworthy that volumes were growing in the Swap/Forward, potentially suggesting some industrial interest, while options were mixed with some days of no activity at all. LoanLeaseDeposit was relatively active but in line with the January-October averages, so nothing especially out of the ordinary there.

The interesting action came as the price reversed course on the 16th, the same day in which gold topped out. This is partially attributable to the retail sales numbers, which, while strong at the headline level, were flat month-on-month and which reminded the market of the problems in the semiconductor sector. Jay Powell’s comments on 22nd exacerbated the price fall, and on the following day, volumes exploded across all four sectors as platinum dived through $1,000, prompting technical, psychological and hedging activity. 

The rest of the month was quieter apart from a final burst in spot trading on the final day of the month as the $950 level came under attack – and in early December, prices were consolidating in that region.

PALLADIUM

If platinum is somewhat hobbled by the parlous state of the semiconductor supply chain, then palladium has it a lot worse. Typically, the auto sector accounts for between 80 and 85% of global palladium industrial demand, and the cutbacks at auto producers are seriously undermining current offtake levels. In November, however, palladium marked time between $2,000 and $2,100 for the first ten days of the month before embarking on a sharp upward move that took it to $2,217 (intraday) in just six trading days, moving smartly into overbought territory; it then went sharply into reverse, plunging to $1,700 in the following seven days. Industrial demand was pretty quiet over the whole of the month, so it is arguable that [rice action was dominated by market-jobbing.

In the background, the activity on NYMEX in the first half of November suggests that there was some bargain hunting going on, along with short covering, which will have helped the upward momentum before the run towards $2,200 prompted profit-taking.

In the background, sentiment was helped mid-month by good headline factory order numbers, although the Federal Open Market Committee meeting noted that bottlenecks were due to last “well into next year” while nonfarm payroll numbers were much better than expected (and wage inflation, while 8.3% annualized were just 3.1% against September 2019). This may well have helped sentiment, and also there was a feel-good factor running through the markets as John Kerry and Chinese climate envoy Xie Zhenhua revealed, at COP26, an agreement to co-operate on addressing climate change. In the longer term, of course, this does not help palladium at all as Internal Combustion Engines are phased out (it is quite possible that by 2040, if plans go as scheduled, that, far from being 80% of the world’s global palladium demand, the auto sector will be a net supplier into the market).

In terms of trading activity, the average volume for the month was 563,800 ounces, but this was eclipsed on three trading days (and if these were taken out, then the average would have been 451,575 ounces). Regular readers of this column will not be surprised to know that these heavy trading days were reversal days, notably the 1.1M ounces when palladium slithered from $1,885 to $1,700 in a major clear-out on the 26th of the month; and then again with another downdraught on the final day, when it traded downwards in a range of $1,811 to $1,707. What is slightly different, however, is that the big trading volume day when the price turned up in mid-month was not the first day of the rally but the second. This suggests that the market was still unsure of itself – understandable given the fundamentals – and needed reassurance. That came in the form of the 10-day moving average crossing the 20-day to the upside and the spot price moving above both of these two plus the 50-day.

There was little fluctuation in the swap/forward sector until the dramatic one-day price moves at month-end, when volumes almost doubled, suggesting some forward over being taken into the price weakness. It is more likely to have been industrial buying interest rather than mine hedging, but we can’t rule out the latter entirely. Options activity was at its height on the 24th, a day of a narrow range, trading around the $1,900 level. LoanLeaseDeposit high-volume days (in excess of a million ounces against a monthly average of generally 0.84M) coincided with the key days already outlined here, as market participants may well have been hedging into strong price moves, especially when spot had cleared $2,100 and then again when the price was under heavy pressure.

The clear-out of weak-handed holders set the scene for an earl-December rally, but this too petered out.

By Rhona O’Connel  

Source: Nasdaq