The question often surfaces, “What are the leading factors influencing spot price volatility in the Precious Metals Market?” Of course, the short answer that goes to the heart of the matter is, “Supply and demand.” However, such a simplistic response would result in a very short blog post! So, let’s dive beyond the simple answer, shall we?
By its very term, “Precious Metals,” it is clear that this sector is dealing with a commodity known for its limited available abundance. Throughout history these metals have been considered rare, and highly valued because of that rarity.
SUPPLY AND DEMAND
Consider, what if tomorrow a vast and seemingly endless supply of gold, silver, or platinum was discovered? Not just discovered, but could also be mined at a much more reasonable cost than traditional methods. We would expect that the spot price would eventually fall due to the abundant supply.
Conversely, if new technologies and Industrial processes began to require increasing supplies of precious metals, spot prices would likely increase with the strengthening demand. Of course, the first scenario of dramatically increased supply is highly unlikely. However, the second scenario of increased demand is not only likely, but also actually occurring.
For thousands of years, gold and silver have been used to store, display, and transfer wealth. Now, with the global rise of high tech Industrial processes, a shift is quickly coming into play. The unique physical properties of precious metals have opened the door to new demands for these metals. Perhaps the most intriguing aspect of this growing trend is that it is completely unrelated to these metals’ monetary uses.
Countless electronic devices, medical/hygiene products, solar electric technology and fuel cells are constantly upgrading. This is driving industrial demand for gold, silver and the platinum group metals (platinum, palladium, rhodium, iridium, ruthenium and osmium). Just consider a few examples of the unique physical characteristics of these metals.
- One cubic centimeter of palladium is capable of absorbing 900 cc of hydrogen
- Silver has the highest electrical conductivity of any metal
- Gold is the most ductile metal and one gram of it can be drawn into a wire 2,300 meters long
- Iridium is the most corrosion resistant of all elements
- Osmium is the heaviest metal
- The platinum group, in general, contains the hardest metals.
Increasingly, machines utilized in the manufacturing process are becoming dependent upon components made from precious metals. Demand is also continuing to increase in the metals use as raw materials in the actual manufactured products themselves. This use of precious metals as raw materials is inherently expensive relative to other materials in the final product. For this reason, they are included in product design based solely upon the performance only they can provide. Nevertheless, increased sophistication of manufacturing processes and products being produced is expected to be a continual driver of Industrial demand.
The “computerization” of common household devices (refrigerators, toasters, coffee makers, thermostats, etc.) is fueling the coming “Internet of Things” (IoT). Some estimates(1) project by 2021 the number of connected IoT devices will increase from 2016’s 6.6 billion to 22.5 billion. The infrastructure to support this massive growth will also be forced to keep pace. Estimates on the increased spend during this time frame push far beyond 4 trillion dollars. All of this equates to increased dependence upon precious metals. It also results in more of those metals finding their way into “disposable” electronics, which will likely never be recovered.
New research into the medical/pharmaceutical applications for precious metals is burgeoning as well. For example, the anti-bacterial properties of silver are extremely powerful. This application is showing up in everything from endotracheal tubes, to catheters, to hygienic coatings for toilets.
INDIRECT MARKET INFLUENCERS
As this growing list of products and applications suggests, global Industrial demand for precious metals will continue as a significant, tangible factor affecting the Market. Interestingly, this is not only by their need of these metals, but less directly, how that growing trend informs investors. Investors are actively using those numbers to plot their involvement in the metal-as-asset, the mining/processing infrastructure, and Market speculation.
Clearly, the Industrial sector will continue to impact the Precious Metals Market. In turn, that impact contributes to the overall effect of other Market influencers. As Industrial demand grows, it is expected to continue to support upward movement of spot prices and the supporting infrastructure.
In future BOLD Thoughts posts, we will examine the industrial demand for Gold, Silver and the Platinum Group Metals individually. We will dive into the numbers and statistics in more detail. The combination of interrelated Market influencers demonstrates that these special, rare metals are even more than a non-fiat alternative to modern currency. They also constitute an invaluable and irreplaceable input into our global industrial processes.
As always, BOLD Precious Metals stands ready to supply you with your own stockpile of these amazing metals!
As a side note, BOLD has a very handy Charts page that allows you to dynamically view the historical spot prices of Silver, Gold, Platinum and Palladium as well as overlay other key financial and market data – click HERE to check it out.
(1) See for example – BI Intelligence Report: The Internet of Things 2017