Gold and Silver Supply/Demand Fundamentals for 2021 / Commodities / Gold & Silver 2020

The supply and demand fundamentals for preciousmetals markets got thrown into disarray this year, leading to heightenedvolatility – first on the downside, then on the upside.

Although gold and silver will finish 2020 below their highs for the year, gold is still headed for an annual return of close to 25%; silver around 45%.

Can hard assets investors look forward tofurther price appreciation in 2021?

Yes, but…there are some near-term risks to thefavorable long-term supply/demand outlook.

Assuming economic conditions begin normalizingnext year, we would expect demand – especially from industrial users – toincrease. Mine production would likely rebound as well.

The mining industry, like many others, facedunprecedented operational challenges in 2020 due to COVID disruptions. Manymines around the world were forced to scale back or suspend production in thefirst half of the year.

By the third quarter, mining output among majorproducers began to ramp back up. Overall, though, the top 20 gold miners willfinish 2020 with an estimated 5% drop in output.

The mining industry is issuing optimisticguidance for 2021. Whether it fully recovers to pre-COVID numbers remains to beseen.

While mine supply is likely to increase versus2020, so is consumer demand for refined precious metals products such asjewelry. Investment demand for bullion will, as usual, be a wild card thatcould move the market at the margins.

A related wild card is the coronavirus.Epidemiologists hope something close to herd immunity can be reached via massvaccinations. But the virus remains unpredictable and could mutate intomultiple new strains.

Virus risks, political risks, and inflationrisks emanating from the Federal Reserve’s unrestrained printing press are allpotential catalysts for safe-haven investment buying of precious metals.

Silver Made a Historic Low in 2020… Will It Make a NewRecord in 2021?

A massive surge of investment demand hit thebullion market this spring as panic gripped Wall Street and bargain hunterscame out in droves.

What occurred was a once-in-a-generation event.Some markets reached unprecedented extremes that defied centuries of recordedhistory.

For example, crude oil futures traded deeplyinto negative territory for a day. And silver got historically oversold versusgold, as the gold silver ratio spiked to as high as a never before seen 130:1.

Near the absolute bottom of the market on March17th, we wrote,“Never has silver been as cheap to acquire in real terms as it is today. Neverhas the silver market traded so wildly disconnected from its fundamentals.”

That article suggested we had hit “peak fear” –out of which “a new uptrend in silver, and a corresponding narrowing of the gold:silverratio, can be expected to extend for years.”

The very next day, March 18th, silver hit itsabsolute low point for the year at $11.75/oz. It went on to spike up to nearly$30/oz in August.

A less dramatic 2021 may be in store. Even so,a global economic recovery and return to some semblance of normalcy would helpstimulate demand for industrial metals as well as silver, platinum, andpalladium.

A major trend set to accelerate in the monthsahead is the move away from fossil fuels and toward electrification.

Solar power and battery technologies areexperiencing explosive growth, and with that growth comes a need for lots morecopper, nickel, silver, and strategic metals. In fact, solar panels are one ofthe fastest growing sources of silver demand.

The “green” programs of the incoming Bidenadministration, coupled with ongoing fiscal and monetary stimulus being intothe economy, could have the unintended consequence of stimulating metalsmarkets.

Demand can grow much more rapidly than supply.Some analysts expect to see widening supply deficits for silver and platinum in2021.

According to Bloomberg Intelligence commoditystrategist Mike McGlone, silver will head toward a new record high on improvingfundamentals and gathering technical strength.

Silver investors should expect some volatilityand perhaps some surprises on the way to an eventual new high in dollar termsabove $50/oz. It may happen next year. It may take a bit longer.

Having a long-term horizon is crucial to beingable to participate in the full magnitude of a precious metals bull market.

A new nominal high in silver will just be thefirst major milestone in a bull market that could go up many multiples fromhere before being expensive or overvalued in real terms.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Stefan Gleason - All Rights Reserved

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