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Why the precious metals market will be volatile in 2022

One of the few films produced in the Lake Seneca area has an interesting connection to the precious metals market. Released on June 13, 2021, TS Pfeffer’s short film “The Eastern” is a modern version of a western drama. It’s a story about a man who comes into town and steals catalytic converters from cars in search of precious metals like palladium. Key shots were filed in Watkins Glen, Dresden, Dundee, and downtown Geneva. “The Eastern” was inspired by the rise in real-life catalytic converter thefts in the Lake Seneca area during the pandemic. According to the West Seneca police department, 35 catalytic converters were stolen in West Seneca over the past two years.
The value of the precious metals in catalytic converters has fluctuated significantly over the past several years. When Pfeffer’s film was released in June 2021, the palladium found in a catalytic converter went for more than $2,700 per ounce. By late December, it fell to just over $1,500 per ounce. Palladium has since surged back to above $2,700 by early March 2022, but current events suggest that the precious metals market might prove more volatile than years past. Here’s a quick rundown on why we’re likely to see the same sort of fluctuations in the price of precious metals in 2022.
Global Events Influence Markets
Russia’s invasion of Ukraine on February 24th has had a colossal impact on global markets, and further international events will continue to influence the way the market shakes out. Not only is Russia the second-biggest producer of gold, mining about 10% of the world’s new supply each year, but its central bank holds $145 billion in gold reserves. This creates a great deal of uncertainty about the short-term future of the gold market. Disrupted trade could lead to a shortage of available gold internationally, driving prices up. Economic pressure could cause the Kremlin to liquidate its gold in exchange for currency, flooding the market with up to 2,000 metric tons of gold, or about two-thirds of the total worldwide gold production of a typical year.
While this suggests gold might fluctuate suddenly and unpredictably, silver and platinum look like they might be even spikier. Ukraine is responsible for the production of about half of the world’s production of neon gas, which is vital to the manufacturing of computer chips. Russia’s 2014 foray into Crimea saw neon shoot up in price by 600%, and the current Ukraine conflict promises an even bigger disruption. Any price increase or interruption to the supply of neon will have big effects on the industrial demand for platinum and silver, which are commonly found in computer chips and circuit boards. Those holding silver bullion might want to wait until the conflict is resolved to cash out, even if the price seems rocky short term.
Inflation and Demand
The residual effects of the pandemic continue to cause supply chain issues in many industries and markets, causing industrial demand to vary greatly. When silver, palladium, or another precious metal causes a bottleneck, prices shoot up. When another material is in short supply, industrial demand for precious metals dwindles. This has caused big fluctuations in many precious metals, including palladium’s spikey journey from $2700 to $1500 and back. There’s a good chance that we’ll see these supply chain issues begin to fade away over the course of 2022, but we’ll also get Federal Reserve rate changes in reaction to the post-COVID economy.
Experts think that the Fed will raise interest rates at least three times in 2022, suggesting that gold is likely to plateau. We might also see a big change in the price of silver due to changing public sentiment, as nearly half of the demand for silver from 2020 to 2021 was a result of speculation, not industrial demand. Silver’s growing industrial use in applications like solar panels lends credence to its selection as an investment vehicle, but it’s not clear how many investors will jump ship if demand plummets due to other events.
An Uncertain Future
It is likely that the events of the past several weeks have rendered most previously written investment forecasts moot. International conflict between one of the world’s biggest gold producers and stockpilers and a leading supplier of neon gas ensures that the gold and silver markets will have drastic and rapid changes over the next few weeks and months. Without a clear resolution to the conflict in sight, there’s no telling when the markets will return to a more stable and normal state. Meanwhile, supply chain disruptions lingering in the wake of COVID continue to cause demand for precious metals to change unpredictably, while anticipated Federal Reserve rate hikes are likely to lower the price of gold.
Between speculation and shifts in industrial usage, with these factors combined, it’s difficult to make an accurate prediction about the future of any precious metal over the next year or so. It’s very possible that industrial demand for metals like silver, palladium, and even gold will make prices soar, making the sort of catalytic converter theft depicted in Ts Pfeffer’s _The Eastern_ more lucrative. It’s also possible that international market disruptions and supply chain shortages have the opposite effect.
Unless you’ve got a very good read on the market, it seems like it’s best to use precious metals as a hedge for the time being and avoid speculation. If you do plan to make a profit on precious metals, consider watching neon for signals about the price of silver, platinum, and other precious metals used in chips. The gas’s unique position as a bottleneck in chip production ensures that it’ll have a big impact on the electronics market in general, giving you some insight into industrial demand for silver and platinum.
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