FX.co ★ LBMA: investors should not ignore physical demand for precious metals

At the Global Precious Metals Conference held by the London Bullion Market Association, speakers noted that retail investors will likely continue to pay high premiums for physical gold and silver bullion due to global supply issues and high demand in the market.

The unprecedented physical demand for gold and silver was the main topic of discussion at the LBMA's annual conference. Many panelists expect global uncertainty to dominate purchases of precious metals until 2023 and the first half of 2024. Meanwhile, record flows from western nations to Asia are impacting the global supply chain that is still recovering from the lockdowns of 2020.

According to Mark Woolley, senior vice president at Brink's Global Services, more than 2,550 tons of gold were delivered between May and April 2020 to New York's precious metal sector at the very beginning of the pandemic. He added that these metals are now flowing back East, which represents a new shift in the market. For example, there is an insatiable, record high demand for silver in India.

After two years of market disruptions, China is once again asserting its dominance in the gold market with record imports in the last few months. Shipments into China this year are forecasted to exceed inflows seen in 2018.

Sunil Kashyap, the director of FinMet Pte Ltd, said that India's silver imports are expected to hit a record high of 10,000 tons this year, double the average annual imports seen in the last few years.

Indians use silver as a store of value. The demand for the precious metal is so high that retailers are having silver shipped in by plane.

Kashyap noted that significant demand for silver in India has pushed premiums up by 25 cents compared to London market prices. Historically, that premium is around five cents.

Terry Hanlon, the president of Dillon Gage Metals, said that a massive supply and demand imbalance will continue to drive premiums for silver bullion higher in the US market.

In regard to supply, Hanlon stated that products from the US Mint remain the biggest hurdle in the silver market. He explained that the US Mint has had issues getting silver blanks to make their coins. The US Mint announced that it is going to mint 11 to 12 million America Eagle silver coins this year.

Terry Hanlon said that his company has had to ship products from Turkey and Australia due to growing demand for precious metal bullion. Additional transport costs have sent premiums higher.

Amid high global uncertainty, investors are looking for safe haven assets.

While gold and silver have seen healthy physical demand, investment flows continue to dominate the price action, which has been in a solid downtrend through most of 2022.

However, some analysts at the LBMA conference stated that investors should not ignore physical demand for precious metals, even though it has only a limited effect on prices.