Exploring Impact of Supply, Demand on Gold and Silver Prices

U.S. Money Reserve Examines the Potential Effects of Supply and Demand on Gold, Silver, and Platinum Prices

Precious metals such as gold, silver, and platinum only exist in limited quantities around the world, and mining operations cannot extract infinite amounts each year.

This relative scarcity gives precious metals an intrinsic value, and their prices can potentially increase if available supply decreases and demand significantly rises.

An Emerging Interest in Silver

With numerous industrial applications, silver saw its demand rise in 2021 and 2022, according to data from the Silver Institute. With versatile qualities such as the ability to resist corrosion and enable electrical conductivity, silver is used in items ranging from mobile phones to medical equipment like breathing tubes and surgical tools.

It also plays a key role in solar photovoltaic power production — which, according to the International Energy Agency, is predicted to have the largest installed power capacity on a global scale by 2027, with usage that may surpass that of coal and natural gas.

Although silver production increased in 2021, growing by more than 5% from 2020 — the largest rise in silver mining activity in several years — production declined in 2022, with reduced output from mines in areas such as China and Peru cited as a contributing factor. The Silver Institute says that in 2022, the market experienced what may be the most significant supply deficit on record.

Potential mining upsets continued in 2023. In Mexico, the world’s largest silver producer as reported by Reuters, for example, new regulations have been passed by the nation’s government — though it’s uncertain whether these changes will affect production. And in Peru, which is ranked as the second-largest producer of silver, some mining efforts were put on pause as political protests hindered operations, according to Forbes.

If the available supply of silver drops in the coming months, market demand for the precious metal may increase.

Gold’s Supply and Demand Status

Generally, mining is the most significant source of gold, according to U.S. Money Reserve President Philip N. Diehl; however, finding available resources to extract, he says, can pose challenges.

“The high-quality veins have been found, and that gold is largely out of the ground,” says Diehl, who served as the 35th Director of the U.S. Mint prior to becoming U.S. Money Reserve’s President. “Now gold is coming from parts of the world that are often politically and economically unstable. That makes gold harder to find and more expensive to mine. New gold coming into the marketplace today must draw a higher price to cover those greater costs and risks, which is driving a long-term increase in gold prices and will continue to do so.”

The interest in gold from central banks — financial institutions that manage countries’ money supply — has also affected its availability. While in the past these banks have served as a source of gold by periodically selling some of the precious metal kept in their vaults, that’s changed in the past 10 or so years, Diehl says.

“Central banks are large net buyers of gold today,” Diehl says. “That has had a significant impact on prices central banks are now bidding up the price of gold instead of selling it into the market and driving down prices as in years past. I expect that trend to continue and intensify.”

Central banks began purchasing significant amounts of gold in 2009, according to the Official Monetary and Financial Institutions Forum, and showed historic levels of interest in gold in 2022. The World Gold Council reported that the central bank–related demand for gold skyrocketed 152% from 2021, reaching its highest level since 1950, in the wake of the economic shocks following WWII and the outbreak of war in Korea.

Automobile Production Is Fueling Platinum Demand

Platinum, one of the rarest metals in the world, is used in a variety of applications, ranging from jewelry to anti-cancer drugs, dental work, and jet engine parts, according to U.S. Money Reserve.

It’s also utilized in the production of catalytic converters — which remove harmful chemicals from engine exhaust systems — for cars and other vehicles. Catalytic converter manufacturing is a major use category for the metal, and the demand for the vehicle component is expected to grow.

Within the next four years, the market for automotive catalytic converters, which totaled $13.24 billion in 2021, is projected to escalate to more than $20 billion, which could equate to an increased demand for platinum to be used in the related production. A recent World Platinum Investment Council report estimated the demand for platinum could rise 27% this year.

However, with production issues being experienced in countries that are major producers of platinum, the organization doesn’t expect the supply of the precious metal to be able to fulfill demand. A 1 million troy ounce deficit is projected for 2023.

The Role Precious Metals Can Play in Your Portfolio

With the ongoing demand for industrial and other uses — coupled with possible supply constraints — many portfolio holders have chosen to incorporate precious metals into their savings plans by establishing self-directed individual retirement accounts (IRAs).

After setting up and funding the IRA, you can select which eligible coins and other physical precious metals assets you’d like to include in the account. You can then adjust the allocation of assets at any point.

For more information about setting up or funding a precious metals–backed IRA, visit U.S. Money Reserve’s website — or call 1-888-708-0458 to speak with an experienced U.S. Money Reserve Account Executive about how you can get started today.

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