For everyone who thought 2021 would bring a return to economic growth, an improving economy, and a way back to normalcy, the first trading day of the year couldn’t have been reassuring. Stock markets plunged while the gold price and silver price rocketed upward. While there are still obviously hundreds of trading days ahead of us, there’s every reason to believe that the first day’s pattern could end up setting the tone for the year ahead.
With continued political uncertainty in Washington, an economy still weighed down by the threat of lockdowns, and nervousness over the future spread of COVID, it’s no surprise that 2021 isn’t back to normal yet. While that may not bode well for some financial markets, it’s likely to be a good thing for gold and silver. Here are four reasons gold and silver should continue to soar in 2021.
1. Strengthened Demand From Investors
Demand from investors for both gold and silver shot up tremendously in 2020. Using US Mint sales data as a proxy, demand for gold shot up over 450%, while demand for silver increased over 100%. While those numbers are impressive, they still pale in comparison to the last bull market, from 2008-2011.
In 2008, the US Mint sold 860,500 ounces of Gold American Eagles, and 19.58 million ounces of Silver American Eagles, both significant increases from 2007. Sales of Gold American Eagles increased to 1.44 million ounces in 2009, then dropped to 1.22 million ounces in 2010 and 1 million ounces in 2011 as gold set an all-time record high price. As you can see, there’s still plenty of room for gold sales to run before they eclipse previous records.
Silver American Eagle sales saw even better sales performance, with 28.77 million ounces sold in 2009, 34.66 million ounces sold in 2010, and 39.87 million ounces sold in 2011. Compare that to the 30.09 million ounces sold in 2020 and you see that silver too has plenty of room to grow.
Based on historical precedent, peak demand for both gold and silver could easily grow another 50%, or even more. With more investors today aware of how gold and silver could benefit their investment portfolios, demand for gold and silver could increase even further, boosting both gold and silver into 2021 and beyond.
2. Supply Concerns
It will be interesting to see what the final worldwide gold and silver production numbers for 2020 end up looking like. But what really matters to the gold price and the silver price isn’t necessarily how much of each metal is produced, but how much of it makes it to the open market.
China is the world’s top producer of gold as well as the world’s top consumer, and you have to assume that much of the gold production is going to straight to the government or into domestic hands, thus never making it onto the open market. Then there’s the question of how much of that gold and silver is actually making it to mints and being coined, and how many of those coins are able to be sold.
As the numbers from the US Mint indicate, the Mint’s sales figures increased substantially over 2019. But those numbers were also impacted by shutdowns as a result of COVID infections among the Mint’s workforce. How much higher would those sales have been without those shutdowns?
With COVID still posing a danger in 2021, there’s every reason to believe that it could continue to play a role in potential workforce shutdowns or slowdowns at mines, mints, and refineries around the world. That could introduce supply bottlenecks that, coupled with increasing demand, could lead to higher gold and silver prices.
3. Political Uncertainty
It looks nearly certain right now that Democrats will win control of the US Senate, but only due to the fact that incoming Vice President Kamala Harris will cast the deciding vote in the case of ties. The 50-50 split will mean that Democrats shouldn’t be able to pass anything too radical, like a Green New Deal, or dramatically higher taxes. Democratic Senator Joe Manchin, who leans moderate to conservative on many issues, will likely be the deciding factor in legislation passing the Senate. But the uncertainty over what might pass the Senate will weigh heavily on Wall Street and investors, as they won’t know with any certainty what the business and investment climate will look like.
With Democratic control will come fears of higher taxes, more regulation, and more government spending. And that could cause investors to fear that the economic recovery underway could end up being short-circuited. As with any case of fear and uncertainty, heightened political uncertainty will likely result in more investors choosing to hedge against future instability by investing in gold and silver.
4. Economic Uncertainty
Despite the elevated level of stock markets, there’s still a lot of concern about the future of the economy and its strength and health. Hundreds of thousands of businesses have already gone under, wreaking havoc on the workforce. The impact on commercial real estate of those closed businesses, as well as the work from home movement, still hasn’t been fully felt. And if the federal government gets in on the act too to force further lockdowns, there’s no telling when the economy will get back on track.
Even with the bounce back in the third quarter of 2020, the economy was still well underneath its previous output levels. Fourth quarter GDP estimates won’t be out until January 28th, which is when we’ll find out whether the economy continued to grow to end the year, or whether things continued to stagnate.
The likelihood of further stimulus payments will also increase as Democrats look set to take the Senate and push for $2,000 payments to Americans, along with likely extensions of unemployment benefits. And with the Federal Reserve playing along by monetizing the debt used to pay for all this spending, upward pressure on prices throughout the economy is highly likely.
For gold and silver investors, the state of the economy right now couldn’t be set up any better for booming gold and silver prices. All the pieces are in place for both gold and silver to possibly break through their all-time highs.
With both metals making big moves to start the year, the thought now isn’t when they’re going to start moving, but when they’re going to stop, and what levels they’re going to reach. Will silver break through the $50 mark? Will gold reach $2,500? This could be a phenomenal year for both gold and silver, and those investors who have made the choice to invest in them could see their trust in precious metals richly rewarded.