Key Supply and Demand Issues the Precious Metals Market May Experience This Year, According to Lear Capital

With the mounting interest in silver, gold, and platinum, prices for the precious metal assets could increase during the remainder of 2023, according to Lear Capital founder and Chairman Kevin DeMeritt.

“It’s economics 101,” DeMeritt says. “Put an increased demand on a fixed supply, the price typically goes up. You can only pull so much out of the ground — and even with new technology, we’re having to go deeper and deeper inside the Earth to get it.”

If you’re wondering what specific factors might affect precious metal activity in the coming months, we’ve got a brief look at some of the potential market influences below.

Banks’ Fervor for Gold Could Continue

As Lear Capital noted in October 2022, central banks had been enthusiastically stockpiling gold last year. Ultimately, they snatched up a quarter of all the gold that was mined during 2022 in a more aggressive pursuit of the asset than the industry had seen in 50 years, according to Kevin DeMeritt.

By the end of 2022, central banks — including ones in emerging markets such as Turkey and China, which the World Gold Council reported were two of the major buyers — had purchased a record amount of the precious metal: 152% more than in 2021.

“Central banks entered the market in 2022,” Kevin DeMeritt says. “[The amount of gold] they purchased was a huge jump. It makes sense; they get to hold gold, and that’s going to offset some of the inflation pressure on paper debt they hold.”

Gold’s value, as a result, has risen. Spot prices for the precious metal, representing the cost of 1 troy ounce of gold in global markets, reached $2,041.30 an ounce on April 13, 2022, the second-highest level in history. As of May 22 of this year, gold prices remained fairly high at $1,970.30, according to the World Gold Council.

Banks’ buying habits can have a particular effect on the availability of gold — and its future value, according to Lear Capital’s Kevin DeMeritt.

“Central Banks are not speculators; they’re not day traders — they hold that metal for 10, 15, 20 years at a time,” he says. “That metal is gone — and you’re not talking about small amounts. If this continues, as we start to see more financial instabilities happen around the country, and probably the world, that demand from central banks is going to intensify, along with demand from institutional and individual investors. You might just wake up to $3,500 [or] $3,700 gold [prices] in the next 24 to 36 months.”

Metals like Silver Offer an Enticing Dual Appeal

Silver’s role in manufacturing and sustainability efforts — combined with the limited overall supply of the precious metal — has helped the demand for it increase for the past two years.

Several of silver’s qualities make it well suited for industrial use. It generally resists corrosion and oxidation, for instance, and can serve as an excellent thermal and electrical conductor, which allows it to be used in applications like solar photovoltaic power production, involving the conversion of sunlight to energy — a process that currently happens to be the top source of green electricity.

Investor interest in silver, too, has risen as inflation climbed and then remained high.

“Numerous investors view silver as a hedge against inflation because it has tended to increase in price during periods of high inflation,” Kevin DeMeritt says.

Even with a 5.3% mining production boost last year, the continued demand for silver has cut into the amount that’s available.

With an anticipated ongoing interest in solar power, DeMeritt expects silver will remain in demand for some time. While an estimated 100 million ounces of silver have been used annually in solar cells, by 2050, the need for solar-related silver is forecast to rise to 500 million ounces.

“The investment side of the market is starting to look very, very good,” the Lear Capital founder says. “The last time we had a recession, the price of silver went up about 350% and hit $47 an ounce. Silver could really start to pick up throughout this year as we go into a recession. Silver is also needed for industrial and clean energy processes, which could help drive its price to more than $30 an ounce this year.”

Silver last reached the $30 level in February 2013, according to CNBC.

Social and Political Conflicts May Reduce Asset Attainability

Similarly, a significant demand currently exists for platinum — a precious metal that’s approximately 30 times rarer than gold, and thus excavated in lesser amounts each year.

Roughly a third of all the platinum that’s extracted is used in vehicle catalytic converters. That market is projected to grow globally from its 2021 level of $13.24 billion to more than $20 billion by 2027.

Since most of the world’s platinum comes from just a few countries — namely, South Africa and Russia — the overall inventory of the physical precious metal asset could become even smaller, Kevin DeMeritt says.

“We’re starting to see demand for platinum increasing,” he says. “At the same time, Russia, because of this war, is not supplying the market with the same amount of platinum they typically would. Because we’re limited to those two countries for the majority of the platinum production, that could be an interesting play for long-term investors moving forward.”

Impeded by elements such as rail and port constraints and adverse weather conditions, the South African mining industry had an often tumultuous year in 2022, according to an Economist Intelligence Unit report.

The war between Russia and Ukraine, which has been in effect since February 2022, has also posed silver accessibility challenges, which may continue, according to DeMeritt.

“There’s an impact from the supply out of Russia,” he says. “Russia [has] a fairly decently sized mining supply of precious metals. I don’t think anybody, at this particular point, is saying we’re not going to see it at some point; it’s just not on the market and available now. [But] I would suspect that over the next 24 to 36 months, you probably will not see that supply come onto the market, even if this conflict is resolved.”