What They Don’t Want You to Know About Gold and Silver

Summary

Gold and silver have seen explosive growth this year, outpacing the stock market and even tech giants like Nvidia. This surge is driven by a combination of real-world supply and demand factors, including increased industrial use, geopolitical tensions, and a global race in AI and energy. Unlike financial assets, commodities like gold and silver are constrained by tangible factors such as mining and refining capacities. Central banks are also stockpiling these metals as part of the 'de-dollarization' trend. With silver's industrial demand growing and gold's role in tech, these precious metals are key players in the global economic shift.

Takeaways

• 😀 Silver and gold have reached new all-time highs, with silver being the top-performing asset of the year, outpacing even stocks like Nvidia.
• 😀 The rally in gold and silver is tied to more than just inflation hedging—it's driven by a global power struggle, particularly the race for AI dominance and energy production.
• 😀 Unlike financial assets like stocks, bonds, or crypto, commodities like gold and silver are tangible, and their value is driven by physical supply and demand.
• 😀 Commodities are constrained by geological limits and production costs, making them different from financial assets which can be issued in unlimited quantities.
• 😀 Commodities are mostly traded in futures markets, which differ from spot markets. Futures reflect expected future supply, demand, and storage costs.
• 😀 Contango and backwardation are key concepts in commodity markets. Contango means future prices are higher than spot prices, while backwardation signals immediate supply shortages.
• 😀 Silver demand has been driven by industrial uses, especially in solar panels, electric vehicles, AI data centers, and other electronics.
• 😀 China has become a significant driver of silver demand, with futures prices in China trading $3 per ounce higher than the global market, reflecting a shortage of physical silver.
• 😀 Gold's price surge is supported by central bank purchases, particularly in emerging markets, as part of the broader de-dollarization trend and geopolitical instability.
• 😀 Gold is critical in the AI race, being used in microelectronics, semiconductors, and high-reliability components like GPUs, essential for AI training.
• 😀 Both gold and silver are increasingly seen as strategic assets in a global race for AI and energy dominance. Investing in these commodities may be a long-term play due to ongoing geopolitical and technological trends.

Q & A

What is the main reason behind the massive rally in gold and silver this year?

The rally in gold and silver is driven by a combination of factors, including industrial demand, geopolitical tensions, and a global race for energy and AI dominance. The surge in silver's price, particularly, is also linked to shortages and high demand for tech-related uses like solar panels, electric vehicles, and AI infrastructure.

How do commodities like gold and silver differ from financial assets like stocks and bonds?

Commodities like gold and silver are tangible raw materials with intrinsic value, and their prices are determined by physical supply and demand. In contrast, financial assets like stocks and bonds are driven by intangible factors such as future cash flows, expectations of growth, and monetary policy. Unlike commodities, financial assets can be created or issued in large quantities by companies or governments.

What is the difference between the spot market and the futures market in commodities?

The spot market is where commodities are bought and sold for immediate delivery at the current market price, while the futures market involves contracts to buy or sell commodities at a set price for future delivery. Futures markets are much larger than spot markets and reflect expectations about future supply and demand, among other factors.

What does it mean when a commodity market is in backwardation?

Backwardation occurs when the spot price of a commodity is higher than the futures price. This indicates tight physical supply, and buyers are willing to pay a premium for immediate delivery, reflecting a shortage of the commodity in the market.

How does the demand for silver in China affect global prices?

China's increasing demand for silver, particularly for uses in solar panels, electric vehicles, and AI infrastructure, has led to a significant price premium in the Chinese futures market. This demand has caused a physical silver shortage in China, with warehouse stocks dropping and driving up prices.

What role does silver play in the AI and energy race?

Silver is essential for modern technologies such as solar panels, electric vehicles, and AI infrastructure, where it is used in data centers, energy systems, and electronics. Its demand is rising due to global efforts, particularly from China and the U.S., to expand energy capacity and compete in AI development.

Why are central banks around the world buying gold, and what does this signify?

Central banks, especially from emerging markets, are buying large quantities of gold as part of a broader trend of dollarization and geopolitical concerns. They are diversifying their reserves to reduce reliance on the U.S. dollar, especially with rising U.S. bond yields and concerns over U.S. fiscal instability.

How does gold play a role in AI development?

Gold is used in high-reliability components such as wires, plating in semiconductors, and chips, including those used for GPUs critical in AI training. Its corrosion resistance and conductivity make it vital for ensuring stable performance in AI hardware.

What is the relationship between the price of gold and the ongoing trend of dollarization?

As countries seek to reduce their dependency on the U.S. dollar, they are increasingly stockpiling gold. This is part of a broader strategy to hedge against the dollar’s potential decline and to prepare for a possible shift to a new global currency system.

Are we too late to invest in gold and silver given their current all-time highs?

While gold and silver have reached all-time highs, the underlying demand drivers, such as the global AI race, energy transition, and geopolitical tensions, are unlikely to disappear in the near future. These factors suggest that there may still be room for growth in these commodities, though timing and specific market conditions will influence future performance.