Precious Metals and Inflation - Part 2
Is 2021 the Year Silver and Gold Prices Skyrocket?
Did you know that inflation is not the only thing to consider regarding precious metal prices? The demand for silver in particular is likely to increase a lot 2021. This demand will add to the inflation pressure on all precious metals this year.
We have talked about the law of supply and demand before. If you didn’t get a chance to read that discussion, click here.
The pandemic had a huge impact on manufacturing and mine production. Now the demand for precious metals is increasing daily. If demand for industrial use of gold and silver increases more than supply, the prices for gold and silver will go up accordingly.
Who buys and uses precious metals?
Silver and gold have traditionally been used for coins, silverware and jewelry. Today that accounts for less than half of the demand for silver and gold.
According to geology.com only about 25% of silver is used to make coins today. The largest segment of demand for silver today is the electronics industry. More than 35% of silver mined today goes into the electrical components things you use daily.
Silver and gold are both excellent conductors of electricity. Each resists corrosion. Gold resists corrosion better than silver, but due to availability and cost, silver is used more than gold in electronics.
Silver is the perfect substance for coating electrical contacts. It is highly durable. Silver’s unique properties make it nearly impossible to substitute. Silver is used by a wide variety of industries in a wide variety of applications.
Just paint silver ink on any non-metallic surface and you have a pathway for electricity. Almost every circuit board and computer chip relies heavily on silver. The phone in your pocket, the computers you use, the vehicle you drive, and almost every gadget and appliance in your home uses electronics that rely on silver.
Semiconductor Shortage Crisis – Happening now.
2021 has already seen a supply crisis for semiconductors. Semiconductors are the very foundation of most anything that uses electronic components. Everything from replacing your refrigerator to getting a new car is affected by this shortage.
This shortage crisis began with a sharp increase in demand from various industries. There was a spike in demand during the pandemic for personal computers, electronic gaming systems and smartphones.
This higher demand created a back-log of orders. Lead time for a computer chip has gone on average 12.2 weeks a year ago to 22.2 weeks today. Now it takes over 4 months just to get the parts companies need to make the things you want to buy!
To make this crisis even more difficult, a large factory that makes these chips for the automotive industry burned down in the middle of March. That factory primarily supplied Toyota, Nissan and Honda. However, with the demand already spiking, this fire just made the crisis worse for every industry that uses semi-conductors.
All this means that the demand for the metals that make these chips is just going to continue to skyrocket in 2021. But computers and electronics are not the only industries that use precious metals.
Photography uses a lot of silver.
It might surprise you that 10% of all silver demand comes from the photo industry. Silver halide crystals are the basis of traditional photography. The film that a traditional camera uses is based on the sensitivity of silver halide to light. So anytime you see photographic film, silver is being used.
The accuracy of photographic film means that silver will continue to be used even with the rise in digital media. Traditional film’s accuracy will continue to fuel the demand. The X-ray that could save your life and that special photograph that makes you smile both traditionally use silver.
In the year 2000 automotive electronics were only 18% of the cost of the car you bought. Today 40% of the cost of a new vehicle is electronics. Those electronics make precious metals like silver as important as steel in the truck you want to buy.
We might look at all the “bells and whistles” in a car and be impressed with how much electronics now go into the vehicles we drive. But under the hood almost every system that makes your vehicle work today uses computer chips too.
Today’s mechanics use computers (which also use silver) as much as wrenches to fix our cars and trucks. Most of the time when we have problems with our vehicles a computer chip of some variety needs to be replaced. How many times have you had a computer sensor problem on your car?
The automotive industry is only going to use more precious metals as the demand for more electronics increases. To add another component to this in the future, electric vehicles will increase this demand even more. Have you heard about the big push for all electric cars over the next few years?
Solar panels rely heavily on silver. Right now the demand for solar panels is making this industry one of the fastest growing uses of silver. Do you think the push for solar energy is going to stop anytime soon?
Silver paste is used on the photovoltaic cells to capture and carry the electrical current. Silver also is used to reflect solar energy into the collectors that generate the electricity in a solar panel.
Nuclear energy also uses silver and so do many of the batteries that store energy. These industries use many other metals as well.
Energy demand is increasing worldwide. This means that demand for both all metals used to make and store energy will also continue to increase in 2021.
Mirrors, glass, medicine, chemical production, jewelry & coins…
Silver is used in so many industries that we don’t have time to go into all of them. Did you know that the medical and anti-bacterial properties of silver continue to be used to save lives? Did you know that silver is the catalyst that is used to make various plastics and coatings? Did you know that mirrors and glass often use silver?
Half of the gold mined today goes to the jewelry industry. Do you think that the demand for jewelry is going down? Everything from wedding rings to necklaces are usually made from gold or silver. We still make some silverware out of silver too.
How about coins and collectors? Do you think with all the uncertainty in the world that people are going to buy less gold and silver coins and bullion? Will investors want precious metals to insure against this uncertainty?
Conclusion – Demand for precious metals is skyrocketing in 2021.
It almost doesn’t matter which industry you look at most use precious metals. Can you think of an industry that doesn’t use any electronics? We use computer chips in almost every industry. Every computer has electronic boards, semi-conductors, chips and processors that wouldn’t work without silver and other precious metals.
Just look around. The universal projection for increase industrial demand for precious metals makes sense. The demand for precious metals is going up in 2021. The only question is how much. Then how much will supply go up?
It certainly looks like demand is already outpacing supply. This means higher prices.
In part 3 we will look at market manipulation. That makes the question, “Will precious metals skyrocket in 2021?” even more interesting.