ETFs invested in precious metals miners, gold and silver, will be sensitive to the supply side of the supply-demand equation determining the price of the metal
Gold mine production has remained quite stable over the past 5 years (2016-2022), according to data of the World Gold Council, at approx. 3 600 tons per year
The 50% increase in gold price from Q2-2018 ($1 306 /Oz.) to Q3-2022 ($1 928/Oz.) has not affected the supply side by any significant measure
The conservative approach of the miners in maintaining production level is related to key aspects of gold demand
Demand constituents are impacted by distinct parameters
- Jewelry, which represents 46% of the total 'above-ground' gold stock on the market, may be subject to extreme factors (such as the pandemic in 2020) but is fairly stable on average on a yearly basis
- Demand in bars and coins (including gold-backed ETFs) - the second largest constituent at 22% of the total 'above-ground' gold stock on the market - is on the contrary and unsurprisingly vary variable, rising by 100% from quarter to quarter before falling back
- Demand by central bank and for manufacturing (electronic & medical device) - the balance in total 'above-ground' gold stock at approx. 15% each - appears fairly stable
Demand of gold as investment, and especially of gold-backed ETFs, could be the critical factor supporting the gold price as gold supply remains constrained
- Gold price variability induced by investment demand will impact junior miners substantially, as volatility of the 'junior' segment of our selection highlights
- Spurts of rising demand, driven by gold as an investment, as was the case in the early days of the pandemic (March '20), are favorable for the miners
Different fund structures in the precious metals space invest in physical precious metals, directly or indirectly (by way of ETNs)
By controlling for performance of the constituents of the selection over short time frames, shifts in market anticipations will be highlighted
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