Precious Metals 2021 Outlook

February 2021 Market Round Up


At the beginning of February 2021, interest in US consumer electronics retailer ‘GameStop’ continued to peak as users of the internet forum Reddit persevered in their attempts to orchestrate a short squeeze of the share price and boost the value. The purpose of this campaign was to force short sellers to exit their positions by reversing the downward price trend and their efforts appeared to prove successful as the stock price rose from under $5 to over $400.

Buoyed by this success, silver was next in the spotlight, as Reddit users were urged to invest in silver mining stocks and silver ETFs. This led to many retailers across the world being overwhelmed with demand for silver coins and bars, causing multiple bullion websites to announce that silver was in short supply.  Whilst The Royal Mint managed to maintain a decent flow of silver stock at this time, sales for the metal were unprecedented.  In fact, on Monday 1st February, The Royal Mint sold ten times its average daily volume of silver bullion and in a seven-day period, over 2,000 brand new customers purchased silver from The Royal Mint for the very first time.

The silver price responded accordingly, rising to its highest levels since 2003 in early February and the LBMA (London Bullion Market Association) recorded over one billion ounces of silver traded at the start of the month.   By the end of the month, however, the price of silver fell back from its high of nearly $30 per ounce, to a low of just over $26.

With silver in the spotlight, many were questioning whether the increase in demand would also lead to a boost for the gold market. However, the World Gold Council was not expecting this to be the case. Speaking at the Annual Mining Indaba in Africa in February, John Reade, Chief Market Strategist at the World Gold Council, commented that they do not expect the buying frenzy to spill into gold as “the gold market is more liquid and much bigger than silver, with around $150 billion traded each day”. However, speaking about the gold market in general, Reade suggested that many factors which drove the increase in gold demand in 2020 were still present in 2021, stating, “we are likely to see investors move into gold”.

Following signs of a US labour market recovery, the gold price dropped below the $1,800 barrier towards the middle of February. By the third week of the month, the $1,800 barrier was reclaimed, this was partly due to the news that US President, Joe Biden, and his Democratic allies in Congress, were clearing the path for their $1.9 trillion COVID-19 relief package.  However, by the end of the month, the price fell again, this time to below $1,750, providing an exciting opportunity for many retail investors to buy at a price dip.

In comparison, platinum performed particularly well in February and, towards the middle of the month, the price per ounce surged above $1,300 for the first time in more than six years. This increase was said to be because of an expected recovery in industrial demand. The growth in demand, coupled with stricter emission standards, would continue to tighten international supply of the metal. As a result of this surge in speculation and demand, the platinum price had increased by more than 28% compared to a low of $1,016 towards the middle of January.

In other markets, the price of Bitcoin surged again after Tesla Inc. released the news that it had invested $1.5 billion in the cryptocurrency.   In their annual report, Tesla also suggested it may invest in “certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future”. This rise in popularity of bitcoin led to questions around the similarities between Bitcoin and gold.  In response to this rhetoric, The World Gold Council emphasised that gold and cryptocurrencies are fundamentally different assets which play distinct roles in an investor’s portfolio. Gold being a well-established, highly liquid asset with a proven track record for serving as a diversifier and a risk hedge while delivering long-term returns.  Whereas cryptocurrencies such as Bitcoin are highly speculative and volatile assets that involve assuming significant risk for the potential of high gains.

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