Interesting article about the metals leasing market, and an explanation of why lease rates are hitting new highs:
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@Divitias it’s not clear to me whether the author is saying that the current price spike in gold and silver will abate as it has after previous price spikes.
The author writes, "For investors, this distinction matters enormously. Panic-driven decisions based on shortage fears risk buying at peak premiums or selling positions prematurely. A clear-eyed understanding of market mechanics, recognizing that elevated lease rates indicate temporary tightness rather than permanent depletion, enables more strategic decision-making.
The precious metals market has weathered similar episodes before and emerged with fundamentals intact. Current tightness will eventually ease as supply chains adjust, refining capacity catches up, and metal flows to where it’s most valued. In the meantime, investors should focus on fundamentals, maintain long-term perspectives, and avoid confusing logistical bottlenecks with existential crisis."
This seems to mean that he expects the bubble to subside after the time needed to move the physical metals through the supply chain.
The question is, even if the price subsides somewhat, how low will it go? Prior bubbles subsided but never to the previous low.
And silver is a different story than gold.
From the article:
" Silver’s Industrial Demand Surge
Sprott’s Silver Investment Outlook reveals that industrial demand accounts for 59% of silver usage, with the electrical and electronics sector emerging as the biggest demand driver. This sector’s silver consumption increased 51% since 2016, driven by solar photovoltaics, consumer electronics, automotive applications, and 5G networks.
Solar PV-specific demand alone accounted for 17% of total silver demand in 2024, compared to 5.6% in 2015, representing an annualized growth rate of 12.6%. China increased its solar capacity by 45% in 2024, creating enormous demand for silver used in panel manufacturing.
This industrial demand is non-discretionary and price-inelastic in the short term. Manufacturers building solar panels or electric vehicles cannot simply pause production when metal becomes tight; they must secure supply regardless of cost, putting upward pressure on lease rates as they scramble for immediately available metal."
Will silver be a better investment than gold? Since silver takes up a lot of storage space, the ETF SLV is probably a better vehicle than physical silver. Even though I don’t entirely trust ETFs to hold the metals they say they do.
Wendy
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Is that relevant or significant?
If we use the previous low of $1100 or so when it last peaked at $1900*, gold could lose roughly 75% from today and not eclipse the previous low. That would be cold comfort for anyone buying it today.
It is worth noting that the last two major run ups in gold were followed by a decade of losses in gold. 1980 through the early 2000s and again in 2011 when it peaked at $1900 an ounce and then cratered to $1100 - and it did not recover for nearly 10 years.
*Nominal dollars, not inflation adjusted as what the chart displays.
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Wendy,
We need to go by the value of the USD. The current value is at high risk. Unless we dramatically change course and up taxes.
Isn’t this also true for the SP500?
isn’t this phenomenon the basis for ‘buy an index’, HODL, and ‘be the millionaire next door’?
ralph
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It is, but I don’t want to stray too far from the topic at hand. The S&P could lose 90% and not hit the lows of the Great Recession of 2009. It could lose 60% and not hit the low from Covid in 2020.