“If the world does well, gold will be fine. If the world doesn’t do well, gold will also do fine… but a lot of other things could collapse.” – Thomas Kaplan
Gold price remains range bound as stock markets continue to push higher. But while virtual currencies, North Korea, and Trump grab a lot of the mainstream headlines, some major players are not only signaling that the gold market is durable, but they are also suggesting something big is coming.
Global demand is one of these major players. Though demand for physical gold in the U.S. may be low, the opposite is true for global demand in the remainder of the market. In China, physical demand has hit the second highest volume in its recorded history. In Turkey, physical gold purchases are nearly three times higher than this time last year. In Europe, physical demand rose 36% over last year’s reports. Germany and South Korea also showed much of the same, pushing up nearly another 45% each.
While South Korea is not the best overall gauge for global market trends, this data does validate that under geopolitical pressure, investors turn to gold and silver. It is safe to conclude that though prices are low, global demand is on the rise.
Central banks also play a major role, and their demand happens to also be on the rise, adding 111 tons to their gold coffers last quarter alone. That figure is 25% higher than the same quarter in 2016. The Central Bank of Russia added 63 tons of gold, pushing its gold coffers to a total of 1,778.9 tons. The Central Bank of Turkey has also increased its gold reserves, adding more than 50 tons over the last year. Kazakhstan is another on the list. It purchased 10.3 tons just last quarter, and has added to its gold standings every month for the last five years. Many other countries are joining in and adding to their positions. While some are doing so with smaller additions, it is still a clear sign that even emerging smaller markets see the need for a better position in gold.
Innovation is another player we have seen. Gold and silver are used in the technological field more and more each year. Gold, specifically, is used in many wireless products, 3D sensors, vehicles, and more. The technological demand is becoming a force behind the yellow metal. Over this last quarter, the overall technology demand for gold rose 2% compared to the third quarter of 2016.
Silver’s position in the technological field has grown wildly as innovation continues in the auto industry and energy conservation. Silver’s demand in the auto industry will continue to rise as they continue toward perfecting our current automobile and creating a driver-less automobile. Cameras, night vision, object detection, and lane departure sensor technology are all increasingly available on the latest models and they all demand silver.
Silver is also used in the production of solar panels — an item that seems to always be seeing an increase in production as companies aim to meet our world’s ever-increasing energy savings demands. Though these companies are trying to lower the amount of silver used per cell, the mere demand of the panel itself along with the necessity of it containing at least some silver drives a greater demand for the precious metal. As these technologies continue to grow, so will the demand for physical gold and silver.
In the face of this increase in demand, analysts are predicting that the gold supply is about to begin a “long-term decline.” More specifically, they are predicting that the global gold supply will fall nearly 30% by 2025. Part of this is due to the fact that most of the “profitable” mining has been done and now companies have to venture further into more extreme environments to find “economically viable deposits.” This adds tougher regulations to the companies as well as adds to production cost, thereby reducing supply.
Supply will always affect the price of gold, and a 30% decrease in its availability will certainly be no exception. If this decline in supply comes to fruition it will act like a bomb in the gold markets, blowing prices sky-high.
Silver is also facing a decline in supply worldwide. The Silver Institute’s 2017 World Silver Survey reported that the total global silver supply fell by 924 tons in 2016. Also in 2016, silver mining production faced its first decline since 2002. The report even went on to state that the silver supply from scrap is falling and hit its lowest level since 1996. This is troubling news, especially considering the demand.
When you stop to consider all of this, it seems there is something brewing in the gold and silver markets that may reward those who stay the course. Do not let the stale and “lowly” 10% YTD gain from gold and silver prices scare you from making an important investment that will protect your wealth long term. I am personally taking advantage of these cheaper prices to better my gold and silver holdings to withstand the uncertain waters ahead.
All profits and returns aside, there are many cases throughout history that have shown metal prices rising alongside the stock markets. However, that always results in a larger wealth transfer when recessions do occur. We are long overdue for a market pullback, and the longer this ride continues, the larger the pullback will likely be.
December is the best month to buy metals due to dollar cost average, but there are even bigger reasons to invest in gold now. A certain demand and an uncertain supply, an uncertain geo-political situation and an uncertain stock market — there is no better time to insure your wealth with precious metals.