Will Gold-Silver Supply-Side Impact Future Prices

By CanadianMiningReport.com Staff Writer / April 08, 2021 / Article Link

Bullion prices have been showing strong recovery from key support levels. One reason for this is the ease in US bond yields and the decline in the US dollar, which boosted buying in the safe-haven asset.

Commodity prices remained firm during the previous week and the recovery in bullion prices showed some recovery in Chinese demand for the materials. The dollar index fell below the 93 mark and the 10-year US treasury yields retreated to 1.68% from highs of 1.77% of the week. Many point to US President Joe Biden’s multi-trillion infrastructure plan as the principal reason for the dollar debasement. An anticipated fourth wave of COVID-19 infections and fear of lockdown measures further supported bullion prices to trade higher during the week.

Demand drivers, such as monetary and fiscal policy as well as their correlation with the U.S. dollar are contributing to the rise in gold and silver prices.  In addition to these factors, market analysts are turning their attention to gold and silver mining supply and how it has varied over time.

Mining supply for both metals stagnated or fell during the 1970s, which brought about a period of soaring prices. What followed was a period when gold miners almost doubled gold mining supply between 1980 and 1998. This resulted in crashing gold prices and silver prices. When we look at this 18-year period, we can see that gold prices fell from $835 per ounce to as low as $280. Silver prices suffered an even larger percentage decline, falling from $50 per ounce to as low as $4.

Gold mining supply began falling in 1998 and it bottomed out in 2009. As a result, between 1999 and 2011 gold prices soared by 650%, dragging along mining stocks of junior gold miners and senior explorers. Meanwhile, silver mining production started rising from 1998 to 2009, increasing to nearly 700 million per year. This brought about an increase in silver prices by 930% from 1999 to 2011, surpassing the return that gold provided.

Since 2016, gold and silver mining supply has been falling, with silver output dropping sharply. Many industry experts express concern with the fact that demand for gold and silver surpasses supply. So it doesn’t come as a surprise when gold prices began rising in early 2016. Silver prices were quick to follow, soaring by 150% between March and late July 2020 as gold prices rose by 40% after the onset of the pandemic.

While historical performance of the commodity market cannot be indicative of future trends, there is a clear pattern that shows that mining output is a significant driver of changes in gold and silver prices. What is even more interesting is that gold mining output seems affect both gold and silver prices

Investors are aware that gold and silver are economically connected via the jewellery and investment markets. But new and rapidly development markets such as the automotive (electric cars), solar (panels), power generation (conductors) are further boosting demand for silver. With eyes on President Biden’s proposed infrastructure spending and climate change mitigation plans, silver mining stocks may be posed for another rapid raise in the months to come.

Currently, the higher economic value makes gold the dominant member of the gold-silver system but the industrial application advantage of silver makes it a better precious metal investment right now. Some experts like Goldman Sachs’ Jeffrey Currie view it as ‘a turbo-charged version of gold’.