This year, according to Kevin DeMeritt, founder and chairman of Lear Capital, economic circumstances such as escalating interest rates could give precious metals’ value an indirect boost.
“The last time interest rates were rising because of inflation was in the ’70s, and the price of gold was up over 500%,” DeMeritt says. “As people look to hedge against high interest rates, precious metals will pick up.”
Other elements, too, could potentially influence the demand for gold, silver, and platinum this year — including some of the following factors.
Gold’s Portfolio Possibilities
Gold, as of early May, was up year over year, and roughly $80 higher than at the start of 2023, according to Lear Capital data.
Historically, the precious metal’s price fluctuations have generally trended upward. Before beginning to increase in 1914, gold’s value remained about the same for approximately 200 years — and it has risen since, more than doubling from 1979 to 1980, and increasing in the decades after.
With gold being a physical asset, it has sometimes been perceived as a diversification portfolio component that may be able to help balance out losses from other investments. Former Federal Reserve Chairman Ben Bernanke, in a 2011 monetary policy hearing, described investors’ view of gold as “protection against … really, really bad outcomes,” and said investors may hold the precious metal so, if a major crisis occurs, “then they have gold as a protection.”
“Gold is considered more of a safe haven during recessions, market volatility, war,” Kevin DeMeritt says. “When investors are worried about the economy — like we’re seeing now with bank failures or the war in Ukraine and saber rattling from China over Taiwan — usually you get more people turning to gold, which can drive up its price. We’re starting to see that more and more.”
Consumers aren’t the only ones expressing an interest in gold. Central banks, DeMeritt states, aggressively pursued gold in 2022, purchasing a quarter of all the mining supply — a significant increase from their previous activity.
“They’ve continued to buy into 2023; and it makes sense,” he says. “They want to hedge against inflation. They get to hold gold, and that’s going to offset some of the loss in purchasing power from the paper money they hold.”
Banks’ robust appetite for investing in gold could mean, however, that possibly even more is off the market by the end of the year for quite some time.
“We have not seen this kind of buying from central banks for 50 years,” Kevin DeMeritt explains. “They’re not speculators; they’re not day traders. They hold that metal for 10, 15, 20 years at a time. That metal is gone; and you’re not talking about small amounts here. 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.”
Silver’s Commercial Charm
Like gold, silver is an in-demand resource for both functional and investing purposes. Its myriad industrial applications, however, are giving it a particularly notable appeal this year, according to DeMeritt.
In addition to serving as a key component in solar photovoltaic power production, which is the top source of green electricity — an estimated 100 million ounces of silver have been used annually in solar cells, according to Lear Capital — silver is used in computers, appliances, mobile phones, and a number of other items. Due to the unique properties the metal possesses, substituting other metals for it can be extremely difficult, according to the nonprofit Silver Institute.
“Gold’s really not an industrial asset,” Kevin DeMeritt says. “It is used for some electronics, but silver is growing as an industrial asset. Batteries have silver in [them]; solar [elements have] silver — the industrial uses are just going through the roof.”
The available amount of silver, however, has not expanded rapidly, despite a nearly 7% increase in global silver recycling and an overall 5.3% rise in mined silver production from countries such as Mexico — the top provider — and China.
“Silver has become a highly in-demand asset, yet the available supply hasn’t vastly increased,” Kevin DeMeritt says. “Numerous investors view silver as a hedge against inflation because it has tended to increase in price during periods of high inflation. Silver is also needed for industrial and clean energy processes, which could help drive its price to more than $30 an ounce this year.”
Supply-and-Demand Platinum Constraints
While platinum has popped up in numerous items’ production — from jewelry to medical devices and bulk chemicals — its application in vehicle catalytic converters is how approximately a third of all the platinum produced today is put to use.
In the U.S., catalytic converter production is the top utilization for platinum-group metals, according to a 2020 U.S. Geological Survey report.
“It’s a fairly versatile metal with a lot of different industrial applications, and it has strategic applications,” DeMeritt explains. “Most of the industrial applications come in the form of a catalytic converter, which is used to reduce emissions in automobiles. With the green economy, everybody wants to continue to do that, so the demand there will continue. I don’t think we’re going to have enough electric cars to take that away for the next 10 or 15 years.”
The global catalytic converter market is actually projected to climb from $13.24 billion in 2021 to more than $20 billion just within the next four years.
Platinum is approximately 30 times rarer than gold, and the total amount that’s able to be mined each year equates to less than 7% of the amount of gold that’s produced. The precious metal’s limited reserves are also catapulting its value higher, according to Kevin DeMeritt.
“We have some supply issues with platinum because it’s relatively limited, with the majority of the world’s platinum coming from just a few countries — two of which are South Africa and Russia,” the Lear Capital founder says. “So we’re starting to see demand for platinum increasing. 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.”