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 absolutely 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 has 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. In fact, central banks bought more gold in 2022 than any year in a 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 for 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.
Joshua D. Glawson writes about politics, economics, philosophy, and personal development. He has Bachelor's in Political Science from University of California Irvine. His columns also appear on FEE.org.
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