Palladium/Platinum/Silver: 2021 dogs are 2022 thoroughbreds
New York (Dec 31) It is no secret that 2021 has been a challenging year for precious metals bulls. Arguably, one would think rampant inflation, excessive money printing, and ultra-low interest rates would create the perfect recipe for a historical run back to all-time highs. Conversely, spectacular gains occurred in outside markets such as energies, agriculture, soft commodities, and stock indices. Although Kitco is predominantly a precious metals website, I have done my best to bring other commodities to your attention by writing long-term trade strategies on Coffee, Crude Oil, Sugar, Wheat, S&P 500, each gaining over 20% in 2021.
At the bottom of the 2021 performance sheet, Palladium aims to wrap up the year down 17%. Not far behind, Silver ended down 12% and Platinum down 10%. Manipulation, you say? Maybe, but it is more of a supply chain issue that will turn these three dogs into thoroughbreds once resolved in the first or second quarter of 2022. Platinum and Palladium are easy to identify where once the auto industry comes back online, the demand should quickly outstrip supply.
Silver prices met two identifiable headwinds, supply chain issues and hedging from mining operations. Remember, a mine is a business, and with rising input costs and questionable covid uncertainty, selling on the forward markets made perfect sense to lock in profitability. Covid related mining closures in 2020 led to massive supply-side production declines out of South America. That supply-side disruption leaves us to believe that Silver will face another price squeeze once demand comes back in the form of Industrial demand.
Now I know what you will say next: investment demand is there, and prices should already be higher. Crunching the numbers, Investment demand makes up about 17% of the Silver market, while industrial demand is about 47%. Look around your house; I'll bet you have electronics with Silver sodering, which makes up the 35% of the industrial demand. If you were to visualize the Silver supply chain, what you would see is the largest mining operations across the globe extract Silver from the ground and ship it directly to China. It then comes back to the end-user in the form of some material input, such as an iPhone. Another commodity that lagged as a result of supply chain issues was Cocoa. Nestle reported that their earnings could have been stronger had they gotten their hands on more Cocoa.
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