Precious metals, like gold, silver and platinum, have seen their prices on the upswing in recent years. A bunch of causes are behind this, such as higher demand, investor inclinations shifting, and market structure changing. So, there is a lot of potential for the precious metals market to grow.
In this piece, we’ll have a glance at the present state of the market and its growth potential.
Gold
Gold is seen as a safe-haven asset. It has long been used in jewelry, coins, and other luxury items. This, coupled with its scarcity, makes it attractive to investors.
The price of gold is driven by supply and demand. It also acts as insurance, protecting against central bank manipulation of currencies.
Gold coins and bars contain at least 99% pure metal, while alloyed metals contain around 91%. Gold can be bought from online platforms or certified dealers.
Price movements are influenced by data from governments, banks, and international organizations about production or demand.
Silver
Silver is both an industrial and precious metal, used for electrical contacts and cell phones. Technology has caused silver demand to rise for solar energy devices.
Some analysts think silver will stagnate, but others believe it has potential for growth due to its uses. Institutional investors are turning towards it for diversification.
Wealthy investors want silver for its low price vs other metals. It can be a good diversification tool and hedging option in times of high inflation.
Renewable energy sources are becoming more common, causing an increased demand for silver. Prices will keep rising, giving retail investors more opportunity to capitalize on this market.
Platinum
Platinum is an ultra-valuable metal, known for its rareness and malleability. It is used in jewelry and cars, and also in electrical contacts, nuclear reactors, and to catalyze chemical reactions. This silvery-white metal is the heaviest of the precious metals, but has one-third less density than gold due to its porosity.
Its excellent electrical conductivity makes it perfect for tools like soldering irons. Unfortunately, there are only a few regions that commercially produce this metal – Russia, South Africa, and Canada. Platinum prices are typically higher than gold and silver, due to its greater demand from industries like automotive or medical devices.
It’s usually traded on an ounce basis, with buyers and sellers setting their own prices based on the current market conditions. The metal’s volatility affects its short-term price movements, as investing is strongly influenced by supply and demand trends for products that use platinum.
Palladium
Palladium is a valuable precious metal; used in electronics and jewelry. Investors have found it to be a lucrative asset, with its price steadily rising to an all-time high in 2019. It has a silvery-white color and is sometimes called “white gold” since it looks similar to yellow-hued gold. It is 30% harder than platinum and 50% harder than gold.
Investing in palladium has many advantages; its rarity, resilience, durability and value make it a great choice for long-term investment. Plus, not many investors are familiar with palladium, so it’s an attractive option.
The main industrial use of palladium is in electronics. Its low electrical resistance means it is an efficient conductor of electricity, used in products like cell phones and laptop computers. This demand has caused prices to rise, but fluctuations may occur due to global economic growth or recessionary pressures.
Demand and Supply
Demand and supply are key in the precious metals market. Supply can be affected by geopolitical events, economic issues, and new sources. On the other hand, demand for precious metals can change due to investor sentiment, new technologies, and inflation.
Let’s explore these factors and their impacts on the market.
Global Demand
Demand for gold, silver, and platinum has been increasing. With Covid-19 and trade tensions, investor’s need a safe place to put their wealth. Precious metals provide that. Plus, industry demand is up due to luxury goods and electronics. China and India add to this too. Central banks add gold to their reserves, increasing investment in these metals.
Speculation in other precious commodities, such as palladium, is up too. This could mean more global demand as activity recovers from the pandemic.
The potential for growth in the precious metals market is strong, given the economic uncertainty and increased industry needs.
Global Supply
The interaction between demand and supply determines the world’s goods and services. Global supply of commodities, raw materials, manufactured products, services and capital influence global markets. To operate in international markets, companies must comprehend both global demand and supply.
Factors, for example, production costs, resource availability, technology advances, and government policies, may alter global supply. Production costs generally direct firms to create a product or service since it impacts their profit margins. Resource availability varies from country to country. Technology permits producers to make a wider choice of goods in more efficient ways. Different countries have their own policies regarding the production or sourcing of some products that can affect the global market.
Therefore, companies should take into account these influences when setting up strategies for growth. It’s hard to predict which country’s producers will control a certain field or sector in the future. Nevertheless, any company looking to expand to foreign markets must understand how global supply can both restrict and increase potential profits depending on market conditions.
Price Drivers
Precious metals, e.g. gold and silver, have prices affected by many things. Supply and demand, geopolitical issues, inflation, and investor sentiment are some of them. Knowing these components helps investors see the state of the market and its growth potential.
Let’s explore the main price drivers.
Economic and Political Factors
Inflation, economic growth and decline, and government financial policies all have an effect on market conditions for precious metals. Inflation raises the cost of goods and services, which can cause prices to increase for raw materials like those used for precious metals production. When inflation is high, investing in gold or silver may be attractive.
Political changes also affect markets. New governments make different economic policies that affect raw materials’ prices. For example, changes to currency strength can influence prices abroad; buyers with weaker currency may be willing to pay more. Global unrest may cause higher demand for precious metals, as investors look for secure financial vehicles.
Industrial Demand
Industrial demand is when precious metals are used for consumer and industrial products, like cars, computers, and medical equipment. This demand is one of the causes of the increasing prices of metals such as gold, silver, platinum, and palladium.
Jewelry and investments both are important in the market for these metals. But industrial demand can have greater influence on the price and long-term trends. Autonomous vehicles, medical devices, consumer electronics, and renewable energy technologies all require tons of gold or palladium. For instance, an iPhone XS has about 0.75g of gold in it.
This new industrial use of precious metals is creating scarcity and will likely push prices higher in 2020 and beyond. Right now, prices are slowly but steadily increasing due to industry’s consumption.
Investment Demand
Investment demand is a major factor in the precious metals market, making up around 70% of total production. This demand refers to buying raw or processed gold, silver, platinum, or palladium for financial gain. Gold and silver are often seen as safe-havens in times of market volatility.
Investors have multiple options when it comes to investing in precious metals. They can buy bullion coins, bars, and ingots from reputable dealers. Exchange traded funds with metal-linked returns are also available. Physical gold is popular during economic recessions as its value is more stable than other assets such as real estate, stocks, and bonds. Futures contracts on commodities exchanges (such as COMEX) can also be used to purchase metal for delivery in the future.
Potential for Growth
The precious metals market is ever-changing. Potential for gain or loss of investments exists. Advances in tech and the global economy are influencing the market.
Let’s investigate the factors and explore the potential for growth within the precious metals market.
Increasing Demand
Demand for gold is rising due to global economic uncertainty, geopolitical tensions and currency devaluations. Banks and investors see gold as a store of value and an inflation hedge. Central banks have been buying gold since 2010 and their demand has been high in 2019. The World Gold Council found that central banks purchased 374 tons in 2019, worth $1.5 trillion.
Major drivers of gold demand include jewelry from India and China, and technology/manufacturing applications. Global demand for gold increased by 4% in 2018, indicating its safe-haven status. Chinese investors bought over 285 tons and the precious metals market is likely to continue to grow in 2020.
New Technologies
New tech innovations are pushing the precious metals market further. Investors seek better ways to store and secure their money. Precious metals offer protection against inflation and potential asset revaluation.
Digital technologies, blockchain networks, and exchanges provide a secure way to trade and store investments. Non-fungible tokens (NFTs) give buyers options to purchase, trade, and store physical commodities like gold or silver. These techs bring customization, security, liquidity, and transparency in trading physical assets.
Crypto-backed ‘stablecoins’ have emerged. They can be used to buy or trade gold on digital platforms. This makes it easier to access traditional safe havens like gold, without large commitments. The coins also offer more privacy than other fiat currencies, plus 24/7 transactions without restrictions from banks or brokers.
The improved accessibility and security has instilled more confidence in both institutional and retail clients for trading precious metals. Investors seeking long-term balance in their portfolios are drawn to this market – leading to potential long-term growth. Those who take advantage now may benefit before prices go up again.
Investment Opportunities
Investing in the precious metal industry can be very beneficial. Precious metals are a finite source, and keep their value even during bad economic times. Furthermore, investing in precious metals is less volatile than stocks, making it an attractive option for long-term capital growth.
Two main types of investments exist in this market: bullion coins and bars, which are physical pieces of metal; and trading and investing in futures contracts, which involves betting on the price of certain commodities. Bullion investments come with some risk, like market volatility and counterparty risk. However, these dangers can be reduced by diversifying your portfolio with both physical gold coins and ETFs (electronically traded funds that track gold prices).
In conclusion, the long-term potential for growth in the precious metals market is very reassuring. Precious metals will always be sought after due to their beauty, scarcity and value. With proper research and knowledge, investors can benefit from price increase while protecting their assets from economic downturns and inflation.
