Precious Metals Market
Following the end of 2020, the average gold price climbed by 27% to $1,770 per troy ounce compared to 2019. After a fall in prices gold performance had hit a high of $2,067 by August followed by price getting corrected and fixed at a reached level. Gold prices received additional support from the US dollar falling against the globe’s major currencies amid low interest rates set by the U.S. Federal Reserve System. As news on successful Covid-19 vaccine trials disseminated, tension in the markets was gradually easing. Gold price flattened out and was fixed at about $1,890 per troy ounce by late 2020.
According to the World Gold Council, global gold demand in 2020 plummeted by 14 %(YoY) to 3,760 tons, which is comparable to that of 2019, when this parameter was below 4,000 tons. Physical demand was hardest hit. Gold demand in jewelry making and manufacturing industry dropped by 33% to 1,412 tons and by 7.4% to 302 tons correspondingly. Investment demand remained strong, especially in exchange traded funds. At the year-end, it more than doubled and totaled up 877 tones. However the gold-buying spree weakened by 59% to 273 tons purchased by central banks. Banks were prompted not to accumulate, but rather to sell their stocks due to a bumpy ride endured by the economy and their investment portfolios rebalanced on the back of a sharp increase in a single asset cost (gold), which also facilitated the boost in metal sales.
According to the Federal Customs Service, Russia exported $18.5 billion worth of gold in 2020, which is 3.2 times more than in 2019. In physical terms, the export of gold more than doubled, to 320 tons. At the same time, the producers themselves obtained the right to export metal under the general license. Previously, general licenses were issued only to banks, and manufacturers could export on the basis of one-time licenses that were issued for a contract with a specific foreign company.
As for the global supply of gold, it decreased by 4% to 4,633 tons compared to 2019. This is the biggest drop since 2013, and is largely attributable to disruptions to gold production due to quarantine restrictions at mines.
In 2021, production and demand for the metal are expected to grow as the global economy recovers, especially in developing countries (China, India). At the same time, the high cost of gold limits the growth of physical demand and expands investment demand, which will be supported due to the continuing risks of the emergence of new strains of coronavirus and, consequently, the increase in the number of cases. Investors are also concerned about the growing inflationary pressure amid low interest rates and expectations of money supply growth through the allocation of financial assistance by governments of different countries to stimulate the growth of their economies.
According to forecasts, in 2021-2022 the average cost of gold will remain at a high level of about $1,880 - $1,900 per tr. oz. At the same time, Credit Suisse analysts do not exclude that during 2021 it may reach a new historical mark of $2,200 per tr. oz.
The average silver price in 2020 was $20.5/tr. oz., up 27% from the 2019 figure of $16.1/oz. Fundamental factors, which allowed the metal to overcome chronic underestimation and gain a foothold at higher levels, played a role in the rise in prices.
It is assumed that the further rise in silver prices will be caused by the more intensive use of the metal in industry, especially in "green" technologies, which receive strong media and political support. According to CRU forecasts, solar energy alone in the period of 2020-2030 will require 25,175 tons, i.e. almost 10% of the annual metal production (~ 2,500 per year).
Turning to the short term - 2021, it is necessary to clarify that the increase in metal consumption will largely be caused by the recovery growth of the world economy, as well as the continuation of the intensive industrial development of China.
The Silver Institute expects an increase in silver consumption in 2021 by almost 11% up to 29,060 tons, of which almost half – 14,460 tons will come from the industrial sector (+ 9% to the level of 2020). Of these, almost 8,400 tons are consumed in the electronics industry, 3,000 tons in the solar energy sector and almost 2,000 tons in electric transport. The main problem with meeting the demand for physical metal will be the decline in global production, which began in 2017 and was burdened by the quarantine restrictions in force and in some places still in force, which were especially noticeable in key mining regions, especially South America. The total budget for geological exploration in the region has decreased by 26% over the year which will additionally cause the problem of metal mining in the future 4-5 years. Despite the growth in secondary metal production, its volumes will not allow to avoid a shortage of silver, which will push prices up again.
According to the conservative estimate of the Silver Institute, the price of the metal in 2021 may exceed $30/tr. oz. and even gain a foothold at this level, but such growth will be caused not only by the intensive use of silver in the industry, but also by investment decisions due to the volatility of the US dollar and the revision of the role of silver as a more attractive defensive asset.