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Renewable Energy Will Be a Key Factor in the Outlook for Precious Metals in 2021

Overall, precious metals were very successful in 2020, and they are expected to keep this progress in 2021 since they are backed by an all-out effort of the U.S and some other countries to move from fossil fuels to renewable energy.

Gold bullion had the best year since 2010 with more than 25% gain, and it was due to the rise in the money supply that occurred after the pandemic stimulus. As of last year, the volume of M1 money flowing through the U.S has tremendously increased to about 66%.

Gold has a phenomenal track record of having 80% gain in the past 15 years, and 2020 for gold was the fifth year of having a constant positive increase.

In 2020, Silver was the top-performing precious metal, up to almost 48%. Palladium with 26 % and Platinum with 11% were both excellent performers as well.

In November, Gold experienced its most significant drop in seven years when Pfizer announced COVID-19 vaccine had been created. It was a good news about vaccinations and a piece of bad news for the gold market. On that day, the gold price dropped about 5%, less than $1,800 an ounce.

2021 Could Also Be a Success for Silver

Silver is expected to make a big profit for industrial applications that are emerging, including renewable energy sources like solar that is progressing all over the world. This is a function of carbon emissions legislation combination and a rapid decrease in the cost of “green” electricity.

One of the main concerns of president Joe Biden is climate change. He has plans to establish a set of rules for a quicker transition to clean technologies that benefit Silver and other metals.

Based on Commodity Market Analysis (CRU) Consulting report, by 2025, solar power generation will increase to 1,053 terawatt-hours (TWh) which is almost two times more than the amount produced in 2019. Five big solar projects around the world are planned and supported by Amazon. Its first renewable energy project is in China that aims to reach 80% renewable energy by 2024 and 100%renewable energy by 2030. These five projects will produce 1.2 million megawatt-hours (MWh) of electricity per year and power 113,000 average U.S. homes when completed.

This is going to be a massive benefit for Silver, considering that Silver is used in solar panels to generate the photovoltaic (PV) cells. CRU reported that PV manufacturers are expected to consume 888 million ounces of Silver by 2030, which is 51.5 million ounces more than the combined production from global silver mines in 2019.

However, some other technologies also need Silver in large quantities even at their early stages; semiconductor chips, cabling, microelectromechanical systems (MEMS), Internet of Things (IoT)-enabled devices to name a few. The amount of Silver used for the projects in 2019 was 7.5 million ounces or 0.75% of annual production. Precious Metals Commodity Management mentioned this amount would double to 16 million ounces by 2025 and triple to 23 million ounces by 2030.

Bitcoin Still Challenges Gold

Even at low-interest rates and higher inflation, the gold price is still rising in 2021. Mike McGlone, a senior commodity strategist, believes gold will be the asset to beat in 2021. He predicts bullion will be more profitable than stocks because of greater quantitative easing and rising debt-to-GDP ratios.

Reduced demand for gold from India, which is the second-biggest buyer globally, will continue to be a weakness in the face of low economic growth and high metal prices. India's gold jewelry sales dropped to its lowest level in the final quarter since 2008.

In the fourth quarter, rising interest in Bitcoin and cryptocurrencies was a misfortune for gold and conventional haven properties. Some assume, however, that both assets will keep growing simultaneously in the future. Mike Novogratz, CEO of Galaxy Investment Partners, estimates that gold will undoubtedly grow by 30 % in 2021, even though JPMorgan expects Bitcoin to rise to around $150,000.

Money has drawn out of gold-backed funds and into Bitcoin funds. If more institutional investors make demands for crypto-currencies, JPMorgan expects this development to continue. Based on his statement, since October, the Grayscale Bitcoin Trust has had inflows of nearly $2 billion, comparing with outflows of $7 billion for gold-backed ETFs. Many investors consider Bitcoin and cryptos as an alternative for gold as a hedge in their portfolio against equities and other currencies.

Mergers and Acquisitions (M&A) in the Gold Mining Spaces

Clearly, as metals' price goes up, miners and investors will make bigger profits and the investors are expected to show more interest in investing money in the precious metal markets. In 2020, gold-backed ETFs witnessed massive inflows. However, despite some exploration companies with triple digital stock gains, miners did not see as much investor interest.

There are many junior mining companies that have been up 100 % to 300 % during the year, but they did not get fair valuations. GoGold Resources, up more than 200%, maintains a team in Mexico that had exciting discoveries. Calibre Mining, Metalla Royalty & Streaming, Revival Gold exploration company of U.S, Magna Gold of Mexico, Brixton Metals, Maverix Metals, and Barksdale Resources are only a few companies working surprisingly strong on this field.

These junior mining companies will soon start showing their positive results. Last year, they raised around $2.5 billion. We will shortly begin to get more results from exploration that could boost their share price.  Due to their big support and help of the juniors, companies such as Major Drilling Group International are very beneficiaries of the capital raised, and there will be some significant discoveries that will be very positive heading to the future.

We have seen the big gold miners merge and shed assets over the last two years, but also they have taken on several investment positions of some exploration companies, but still, there were not any particular mergers in the mid-tier gold mining space. We have witnessed Premier Gold Mines, and Equinox Minerals combined lately. Another case of larger companies that just began to pick up producing assets is Agnico-Eagle Mines. 2021 could be the year of increased corporate operation, which could lead to further asset development and restructuring; also, acquisitions may resurface in no time.

How About Platinum

Platinum is being used in so many areas such as the catalyst in hydrogen fuel cells, and we expect Platinum to get a little more attention this coming year as it is catching up with other precious metal prices. Being a catalyst will provide a whole new use for Platinum to expand its demand beyond diesel engines and as an exhaust catalyst while diesel vehicles are losing market shares and are being replaced by Volkswagen.

With Platinum being used, you will see the electric vehicle market snowballs. Palladium usually operates in internal combustion engines (ICEs). This can be a major headwind for palladium if electric vehicles succeed.

However, it still needs more time to happen. Metals Focus said that massive demand from the automotive sector, especially in China, may be seen in 2021 combined with stricter emissions legislation of the U.S administration, this could be sufficient support to drive palladium prices back up to high levels.

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