LBMA Trade Data: Turnover Figures for April

By Rhona O’Connell, Head of Market Analysis, EMEA & Asia, StoneX Financial Ltd | May 10, 2021

Welcome to our monthly analysis of Over-the-Counter trading volumes for the major precious metals. There were some interesting patterns in April. Probably the most telling is that, except for palladium, spot volumes were down substantially when compared with the daily average for the first quarter, while gold and palladium forwards were up substantially and marginally higher in silver and platinum.

As ever, heavy volumes were almost always followed by changes in trend, or at least a correction.

Source: LBMA, NASDAQ, StoneX

GOLD

There were four days in April when gold volumes were unusually high, and in three of those days, the price rose; all were in the first half of the month, namely the two days either side of Easter, i.e., the 1st (heavy volumes in the forwards), 6th (the heaviest day for spot trading); then the 8th, which saw very heavy options volume. The final day of heavy turnover came on the 29th when gold traded a $27 range with the emphasis on the downside, and here, too, the volume was concentrated in the forwards.

Interestingly on the first of the month, spot volumes were exceptionally low. But this was immediately before the Easter break, and volumes had been low on the preceding day also, suggesting that the spot markets were winding down and adjusting positions ahead of the quarter-end (and those low volumes led to wide trading ranges). Gold prices had been under pressure in the second half of March, and at month-end, prices had slumped to nine-month lows below $1,700, down from $1,750 only a fortnight previously. As bond yields started to ease in response to President Biden’s $2.25Tn stimulus plan, the turnover figures suggest that consumers and other market stakeholders may well have been taking forward cover. Bargain hunting developed when the markets re-opened after Easter and spot volumes ballooned to over $25M ounces (against an average daily volume of the four months of 20.7M ounces) as the price started its bull run, which, as we write on May 11, has generated a gain of 10%.

Option volumes were erratic over the month, and the reason for the heavy options volume on the 8th is not immediately apparent, but the price was rising above $1,750 at the time (partly in response to more dovish minutes from the Federal Reserve Board) and hitting resistance both from the 50-day moving average and an overbought Bollinger signal.

Finally, at month’s end, gold forwards surged to the highest level in the year-to-date at 31M ounces, which was 3.2 times the average for the four months (excluding the 29th). This came in response to strong economic data from the United States, with the advance estimate for GDP coming in at 6.4% (albeit from the massively dislocated activity in Q1 2020), amid several bullish economic components, and especially a surge in consumer spending. In addition to this, the 29th was the fourth day on which gold had failed at $1,800, and this may well have prompted hedging from the mining sector to lock in prices. Ironically, of course, events in May have rather overtaken that, with gold moving up to test $1,850.

SILVER

Silver volumes followed a similar pattern to those of gold at the start of April, with low spot volumes combining with heavy activity in the forwards. At 327M ounces, the swap and forward volumes on the first of the month were the second-highest for the first four months of the year and 2.8 times the average for the period. Stimulated by gold’s recovery, silver rallied from just below $24 at end-March to test $25 on April 1 and, also in keeping with gold, started a bull run that since the end of March through to May 11 has seen silver test $28 before retreating, to post a net gain of 15%.

Spot volumes were at their heaviest on the 20th and 21st of the month, and, as we have noted in previous volume analyses, the 21st, which at 276M ounces was the peak for April, signalled a correction in silver’s bull run after a failed test of $27. While heavy for April, this volume was not that out of the ordinary for the year, coming in just 1.8% higher than the daily average for the first quarter. Here, too, the driving force was gold with a $20 rally (with the Fed maintaining its easy stance while the Bank of Canada announced a tapering programme), but the surge in volume may well have been triggered by the clearance of the 50% Fibonacci retracement from the downturn in February, which took silver firmly into overbought territory before starting its correction. Options activity was also lively during this mid-April period, but for the month, volumes were low overall.

Overall activity tailed off towards month-end as prices stabilised, providing a platform for renewed gains in the first days of May.

PLATINUM

Platinum continued its steady recovery in April, oscillating gently in a steady upward path, extending the recovery that started in October after a seven-year bear market. In common with much of the rest of the sector, overall volumes were below the average for the first quarter of the year, although option activity, though erratic, was substantially higher, by virtue of three days of heavy activity dispersed throughout the month, each roughly one week apart (13th, 21st, 28th). All these days traded narrowly, with two of them easing in price and one posting gains.

The first day of heavy options trading was also a day of remarkably high volume in the spot price and – yet again – signalled a change of direction. The price had fallen from $1,250 to $1,150 in just over a week, and $1,150 had already established itself as a support level. The trading numbers accordingly demonstrate a renewed interest in bargain hunting, which was then mirrored when the same thing happened in reverse on 27th, under heavy selling activity at the $1,250 level.

Much of the month could therefore be described as backing and filling and underpinning the market’s gradual strengthening. From a fundamental standpoint, platinum is expected to post a surplus this year, but participants are looking further ahead to the potential offered by the use of fuel cells in the automotive sector. This comes after 40 years of trying but has only now gained traction with governments prepared to put funding into the greening of the global economy. The price and volume action also suggests that there is a healthy body of trading interest, with participants adding liquidity by trading around ranges.

PALLADIUM

Palladium activity in April was the reverse of platinum. Palladium was the only metal of the suite to post higher average daily spot volumes than that of the first quarter, while options activity was 53% below the Q1 average with several days showing no volume at all. Loan lease and deposit were also stronger, which probably suggests either industrial activity in the chemical sector, miners locking in strong prices, or potentially some borrowing against the disruption to supplies from Norilsk following the flooding at two mines.

Spot trading patterns certainly suggest industrial interest. The heaviest volume of the month (during which prices moved from $2,628 to $3,011) came on the 8th after the price had slipped by almost $60 on the previous day. The rest of the month thereafter saw 12 days in which the price advanced and just five when it fell; the last of these was the 30th, after a test of $3,000 had failed. The previous day had also seen heavy volume, and once again, we saw a change in trend – or at the least, a correction, thereafter.

Swap and forward volumes were well up also with the high volumes relatively evenly spread across the month. This could well point to inventory management on the part of the auto companies as the semi-conductor shortage is seriously impeding activity. Although the automakers, at least in North America, have been working on a just-in-time basis, it is certainly possible that there may be some inventory management going on.

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