The supply and demand basics for precious metal markets got tossed into disarray this year, resulting in heightened volatility– initially on the drawback, then on the upside. Will the gold and silver supply and demand in 2021 will be such that will drive the prices of the two assets higher?
The Gold and Silver Supply and Demand in 2021
Although gold and silver will complete 2020 listed below their highs for the year, the gold price will end up with a yearly return of nearly 25%; and silver around 45%.
Can Precious Metal Investors Expect More Price Appreciation in 2021?
Yes, however, there are some near-term threats to the favorable long-lasting supply/demand outlook.
Assuming financial conditions begin stabilizing next year, we would anticipate demand– specifically from commercial users– to increase. Mine production is expected to rebound also.
The mining market, like numerous others, faced extraordinary operational challenges in 2020 due to COVID-19 interruptions. Many mines around the world were required to scale back or suspend production in the first half of the year.
By the third quarter, mining output among significant producers started to ramp back up. In general, however, the top 20 gold miners will end up in 2021 with an approximate 5% drop in output.
The mining industry is issuing positive assistance for 2021. Whether it fully recuperates to pre-covid19 numbers remains to be seen.
While mine supply is likely to increase versus 2020, so is consumer demand for refined precious metals items such as fashion jewelry. The financial investment need for bullion will, as usual, be a wild card that could move the marketplace at the margins.
A related wild card is the COVID-19 virus. Epidemiologists hope something near herd resistance can be reached through mass vaccinations. However, the virus stays unforeseeable and might mutate into numerous new strains.
Virus dangers, political dangers, and inflation risks originating from the Federal Reserve‘s unrestrained printing of money and the European Central Bank’s money flooding are all potential drivers for safe-haven investment purchasing of precious metals.
Silver’s 2020 Historic Low Could Turn to a Historic High in 2021
A massive rise of investment demand hit the bullion market this spring as panic gripped Wall Street and bargain hunters came out in numbers.
What occurred was a once-in-a-generation event. Some markets reached unprecedented extremes that defied centuries of recorded history.
For instance, crude oil futures traded deeply into the unfavorable area for many months. Silver got historically oversold versus gold, as the gold-silver ratio surged to as high as ever prior to being seen at 130:1.
Near the outright bottom of the market on March 17th, we wrote, “Never has silver been as low-cost to acquire in genuine terms as it is today. Never has the silver market traded so extremely detached from its fundamentals.”
That post recommended we had actually hit “peak fear”– out of which “a new uptrend in silver, and a corresponding constricting of the gold/silver ratio, can be expected to extend for many years.”
The very next day, March 18th, silver struck its outright low point for the year at $11.75/ per troy ounce. It went on to surge as much as nearly $30/per troy ounce in August.
A less remarkable 2021 may be the case. However, an international economic recovery and return to some form of normalcy would assist in stimulating demand for commercial metals along with silver, platinum, and palladium.
A major trend set to accelerate in the months ahead is the move away from nonrenewable fuel sources and toward electrification.
Solar energy and battery technologies are experiencing explosive growth, and with that development comes a need for lots more copper, nickel, silver, and strategic metals. In fact, photovoltaic panels are among the fastest-growing sources of silver demand.
The “green” programs of the incoming Biden administration, paired with ongoing fiscal and monetary stimulus into the economy, could have the unexpected repercussion of stimulating metals markets.
Demand can grow a lot more quickly than supply. Some analysts expect to see broadening supply deficits for silver and platinum in 2021.
Silver investors must anticipate some volatility and maybe some surprises on the way to an eventual brand-new high in dollar terms above $50 per troy ounce. It might take place next year. It might take a bit longer.
Having a long-lasting horizon is important to be able to participate in the full magnitude of a precious metals bull market.
A brand-new nominal high in silver will just be the very first major turning point in a booming market that might increase several times from here prior to being overvalued in genuine terms.