As the world continues to be rocked by inflation and financial instability, four precious metals “megatrends” have emerged largely undetected by the mainstream – central bank gold buying, rapidly expanding silver uses, a platinum supply breakdown, and capital control schemes.
Although no one can predict how these megatrends will influence prices, these factors represent bullish fundamental drivers for the major precious metals.
1. Central Banks Building Gold Reserves
Gold has been recognized as sound money throughout time. There are many reasons for gold's monetary status, including its rarity and limited supply. Nearly every major culture values gold as a symbol of wealth – and for hedging against failing currencies.
When governments overspend or overprint, their currency decays. As the value of unbacked currencies bleeds away, demand for investing in precious metals, especially gold, tends to rise.
Around the Great Depression, 1929 to 1934, the gold price in the United States rose from $20.67 to $35 per ounce in conjunction with President Roosevelt's dollar devaluation. Subsequently, the yellow metal skyrocketed in the 1970s and remained in a long-term uptrend.
Central banks were usually net sellers of gold from the late 1970s until 2010.
They even created the Washington Agreement on Gold in 1999 as a mechanism for coordinated gold selling among central banks.
But that net selling has turned to net buying since 2010 and has accelerated. Central banks bought more gold in 2022 than any year in half a century, and 2023 is looking no different.
Central banks are accumulating gold due not only in response to economic uncertainty, but also to hedge against weakening currencies, diversify their portfolios to mitigate risk, insure against U.S. capital controls, and safeguard national financial systems.
This net demand is spilling over into other areas, and the trend of gold buying is accelerating across the globe, particularly in the Far East and the Middle East.
Do the “powers that be” know something the public doesn't?
2. Silver Uses Rising Sharply
Over the past few years, the demand for silver has risen to record highs in several industries and sectors, and investment demand has also jumped.
Some common uses for silver are jewelry, coins, batteries, electronics, antimicrobial agents, and more.
Interestingly, silver has the highest electrical and thermal conductivity, and the lowest contact resistance, of all the elements. This is why silver is indispensable to so many technological applications. It's also the best natural biocide.
Meanwhile, there has been a global push for solar panels and other “green” technologies that use silver in response to a movement away from fossil fuels. It's reasonable to assume all these demand factors will push silver prices higher over time.
3. Platinum Supply Sources Becoming Tenuous
Platinum is one of the scarcest precious metals in the world. Although platinum is rarer than gold, it currently trades at a substantial discount (a recent phenomenon).
Common uses for platinum include catalytic converters for automobiles, catalysts in chemical industries, fiber optics, LCDs, pacemakers, spark plugs, cancer treatments, jewelry, computer parts, and weaponry. Investment demand has been increasing too.
However, the source of platinum supply is concentrated in just a few areas. Over 70% of the world's platinum originates in South Africa – with the remaining primarily coming from Canada and Russia.
Available supply, i.e. mine production of platinum, has seen a devastating decrease due to 1) power shortages and social unrest in South Africa which has been undermining productivity; and 2) trade disruptions caused by Russia's war with Ukraine.
The World Platinum Investment Council projects by 2023, the platinum market will enter into a deficit of 983,000 ounces – one of the largest on record. The increasingly tenuous state of platinum supply – a trend that shows no signs of reversing – is a highly bullish fundamental factor for platinum.
4. “Ethical Sourcing” ESG Mandates Bolstering Capital Control Schemes
In richer countries, government elites and their far-left political allies have been engaging in a campaign to persuade the populace to favor companies and products that are sourced in a way they are told is more ethical.
Most have heard the buzz phrase ESG, which stands for “Environmental, Social, and Governance.” ESG aims to starve companies of access to capital and stymie regulatory approvals if they do not adopt specific programs and practices.
In the mining sector, this trend manifests through environmental practices, hiring practices, miners' pay, mining health conditions, and extra payoffs to local communities.
There are three categories trending in the so-called ethically sourced precious metals industry.
Fairtrade metals are derived from mines in which miners are paid a higher-than-average wage.
Fairmined metals are ones whose origins can be traced to their respective mines, extracted with environmentally friendly practices, and support the local economy from which they are derived.
100% recycled metals are taken from junk parts such as computers, dentist offices, cars, etc. They are melted down, removing impurities, and condensed into larger blocks.
With top-down ESG mandates coming from the global elite, the United Nations, and government regulators such as those at the SEC and the EPA, an increase in demand for these “ethical” certifications in precious metals is exceedingly likely.
Meanwhile, the countries that tend to embrace these notions are usually allies of the U.S., and the “non-compliant” countries tend to be on the “outs” with the U.S. – raising accusations of political astroturfing and bullying.
Given how much precious metals the U.S. and its allies, along with other countries, may wish to acquire, ESG schemes may provide another way to control the marketplace.
These “ethical sourcing” ESG models in the precious metals industry are largely in sync with the global “climate change” agenda, which seems more about imposing top-down controls on the economy rather than caring for employees, local communities, or even the environment.