Industry Applications: Factors That Impact Precious Metal Spot Prices

When the titans of modern industry use gold, silver, and other precious metals in manufacturing, it can have a marked impact on prices.

Many people don’t realize that precious metals aren’t just for coins, investments, and jewelry. Each type of metal also has industrial applications that make them useful or even necessary for the production of certain everyday products. These applications also produce a certain level of demand for those metals, which by extension affects their prices.

Here’s what all precious metal investors need to know about the industrial applications of metals and how those applications affect their spot prices.

Industrial Uses of Different Precious Metals

Before explaining how industrial use can affect prices, it’s important to understand the different uses of some of the major investment metals. Below are brief explanations of how each of these metals are used in the manufacturing industry.

Gold

Gold is far more than just a decorative metal. It’s also an excellent electrical conductor—a fact which has led to it being used in almost all modern electronics, including smartphones and computers. In fact, the device on which you’re currently reading this article almost certainly contains a small amount of gold. The metal’s ability to reflect sunlight also makes it essential for protecting spacecraft from the absorption of too much ultraviolet radiation, as well as making it a key material in solar panels.

Silver

Silver is used in everything from electronics to medical devices. It’s the most reflective of all metals and also has antimicrobial properties that give it many medical uses. Like gold, silver is also a key component of photovoltaic cells in solar panels.

Platinum and Palladium

Though they are two distinctly different metals, platinum and palladium may safely be grouped together when it comes to describing their industrial applications. Both platinum group metals are used to make catalytic converters in gas-powered cars, making them integral to the modern automotive industry. Though each metal also has applications in the production of medical equipment, automotive use accounts for the majority of industrial demand for both platinum and palladium.

Industrial Component of Demand

Economically speaking, anything that creates demand for a given commodity puts an upward pressure on its price. Commodities with significant industrial use tend to have some of the most stable pricing ranges because of the consistent levels of demand put on them by various manufacturing sectors. It is partially for this reason that precious metals remain so consistent, even during periods of relatively stagnant economic growth.

Despite this consistency, technological advances can and do have an effect on the industrial demand of precious metals. Platinum and palladium, for instance, may see reduced demand over the coming decades as electric cars, which don’t require catalytic converters, gradually gain a larger share of the automotive market.

Conversely, the development of sustainable energy technologies will almost certainly increase the demand for gold and silver, thanks to its usefulness in the creation of solar cells. Future technological trends can be difficult to predict, but you should at least try to learn about and take them into account when buying precious metals that have industrial value.

Supply Twist: How Industrial Use Sometimes Loses Metals

One last and truly fascinating element of the effect of industrial use on spot metal prices comes on the supply side of the price mechanism.

Over time, some industrial applications can actually reduce the effective global supply of a precious metal. The most prominent example of this phenomenon is gold that’s used in consumer electronics. Though gold is extremely valuable, the very tiny amounts of it that are used in any one device often make it economically unfeasible to recycle. A smartphone, for instance, contains only about $.50 worth of gold. As a result, these devices often find their ways into dumps and landfills without the gold in them being recovered.

Though the per-unit loss is miniscule, the number of electronic devices made each year, combined with their relatively disposable nature, can add up to large supply losses over time. Many estimates now put the value of discarded gold in the world’s landfills up to the tens of billions of dollars—a considerable sum by any measure. If this trend continues, the standard economic model of supply and demand predicts that it will, over time, put a gradual upward pressure on the price of gold.

Be sure to check out the other articles in this series to read about more key factors that impact precious metals prices: