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What Surprising Uses are Driving Demand for Gold – Kevin DeMeritt of Lear Capital Explains

by Rachel MillsDecember 6, 2023

The world’s supply and reserves of gold and silver are not limitless. As Kevin DeMeritt, the founder and owner of Lear Capital highlights, there’s a upward boundary on the annual influx of freshly mined precious metals.

"The gold and silver mining supply, especially on the gold side, has been very consistent on a yearly basis," DeMeritt says. "That really doesn’t change all that much. You can only pull so much out of the ground - and even with new technology, we're having to go deeper and deeper inside the Earth to get it."

Several factors can deplete the available supply of gold and silver. One significant factor is a surge in a specific usage for either metal, which can spark greater interest, diminish overall availability, and lead to price hikes.

The following elements are likely to influence the demand for gold and silver in the upcoming months:

1. Jewelry

Historically, jewelry has been a major driver for gold demand, with India and China as the top consumers of gold for jewelry. These nations collectively account for over half of the world’s gold used in jewelry.

While 2023 has seen a slight dip in gold usage for jewelry compared to 2022, the utilization of gold in necklaces, rings, and other items witnessed an impressive 8% increase between the second and third quarters, according to the World Gold Council.

Silver has also experienced robust growth in its demand for jewelry, with a remarkable 29% increase in 2022. India’s jewelry and silverware demand significantly contributed to the overall surge in global silver demand last year, according to The Silver Institute. Oxford Economics predicts a 34% growth in silver demand for jewelry through 2033, with an anticipated 42% overall increase in output from jewelry, silverware, and industrial fabricators over the next decade.

2. Central Banks

Central banks have traditionally held gold as part of their foreign exchange assets, but 2022 witnessed a remarkable surge in their gold acquisitions, with a staggering 152% increase compared to 2021, marking the highest level since 1950.

This substantial central bank buying can profoundly impact gold’s availability, as DeMeritt points out.

"Central banks purchased a quarter of all the mining supply, which is a huge jump," the Lear Capital founder says. "They're not speculators; they're not day traders. They hold that metal for 10, 15, 20 years at a time. That metal is off the market, and you're not talking about small amounts here."

This consistent buying has a significant and lasting impact on gold availability, further reducing the available supply.

The trend persists into 2023, with the World Gold Council reporting a historic pace of central bank buying during the third quarter, up 14% year over year. They predict this buying spree will continue, ensuring a robust annual total for 2023.

3. Investor Appetite

Gold has long been considered a safe haven during economic uncertainties. In 2022, amidst high inflation and stock market turbulence, global investment in gold coins and bars surged by an impressive 10%. A Gallup poll also revealed a growing preference for gold as a long-term investment, nearly doubling between 2022 and 2023 among Americans.

In the third quarter of 2023, investment-related demand for gold was 56% higher year over year, with bar and coin investments on the rise since the second quarter.

"Gold is considered more of a safe haven during recessions, market volatility, war," Kevin DeMeritt says. "When investors are worried about the economy, usually you get more people turning to gold - which can drive up its price."

Silver has also been in high demand for investment purposes, and its performance has been impressive. Between 2001 and 2022, silver’s value soared by a remarkable 377%, outperforming the Dow Jones Industrial Average and S&P 500 alongside gold between 2001 and 2021.

Silver’s investment demand constituted a substantial portion of overall demand in 2022, accounting for 27%, as per the Silver Institute. Additionally, its industrial applications rose by 5% last year, driven by sectors such as automotive and construction.

As DeMeritt notes, the burgeoning industrial demand for silver is expected to continue contributing to its demand, even beyond investor interest. With silver incorporated into batteries and solar elements, industrial demand is set to persist, impacting silver prices.

"Silver has become a highly in-demand asset, yet the available supply hasn't vastly increased," DeMeritt says. "You have this industrial demand really pushing up silver prices. Batteries have silver; solar uses silver - there's going to be demand for silver from industrial uses, regardless if investors purchase it or not."

While gold and silver supply is finite, demand continues to evolve as their many uses impact the global market. Keep an eye on these trends as they drive attention to gold and silver as valuable assets.

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