The economic factors pushing silver and gold prices higher in 2021
Precious metals have been enjoying a strong couple of years as pandemic-related economic fears pushed gold prices higher, and investors retreated to their familiar safe havens. But as the world begins to shed pandemic restrictions and economies reopen, will gold and silver retreat to make way?
There’s plenty of evidence that strong demand for bullion will only continue. It’s still a great time to buy gold and silver as part of your investment portfolio.
#1 Consumer spending is pushing inflation up
Inflation is on the rise across the developed world. In the past year, consumer prices in the US have risen almost 4 percent, which is considerably higher than the target rate of 2 percent. That’s the biggest gain since 2008 when inflation was driven by skyrocketing oil prices.
There are several factors that have resulted in rising consumer prices, and while some may prove temporary, others could turn into a persistent problem:
- Ongoing low interest rates continue to encourage borrowing
- Pandemic retail restrictions have created pent-up demand among many consumers that are now being released
- Savings rates increased in many countries throughout the pandemic
- Central banks created a glut of new money to keep economic activity going
Gold and silver are often used by investors to hedge against inflation. They’re seen as more likely to retain their value against inflation than other assets.
#2 Global demand for silver is rising
Silver is not just an investment asset, it’s also a commodity with widespread industrial and commercial uses. It’s used in the production of solar panels, medical equipment, and electronics, not to mention jewelry.
Reuters reports that industrial demand for silver is set to rise 9 percent in 2021, while silver jewelry demand will rise to 174 million ounces, riding on a flood of new consumer spending.
Consistent demand will give prices an elevated floor, although supply has also risen to its highest levels since 2016.
#3 The dawn of a commodities new super-cycle
The commodities super-cycle is a phenomenon where a broad range of commodities rise in prices in tandem. The last time this happened was the commodities boom of the 2000s. Prices rose consistently on the back of strong global economic growth. While the 2008 collapse took the wind out of prices temporarily, but it wasn’t until 2014 that oil and metal prices collapsed.
In 2021, the conditions for a new commodities super-cycle are well in place. Global demand for commodities collapsed at the start of the pandemic, but prices have since recovered and then some. Supply restrictions on food products, copper, oil, and lumber have meant surging prices as industrial production has recovered.
If history is anything to go by, all of this is good news for gold and silver investors. Most importantly, commodities are years-long, broad-based price movements, which are the kind of conditions that may lead to record-breaking prices and sustained gains lasting years from now. It’s a good market to get into early and can lead to solid returns when you sell down the line.
Story by Rob Teitelman