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Focus on Fundamentals: Demand for Gold and Silver in Tech Industries Expected to Grow

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Technology will play a key role in driving precious metals demand in the coming years according to reports released this week by the World Gold Council and the Silver Institute.

The World Gold Council Gold Investor report for July focused on the growing use of gold in technology. According to the report, over the past decade, the tech sector accounted for more than 380 tons of gold demand annually. That’s 13% ahead of central bank purchases during the same time period. The demand for the yellow metal for tech applications logged its sixth consecutive quarter of gains in Q1 2018.

Technology is transforming the way we live, work and play, changing almost every aspect of our world, from industry to financial services to healthcare. Gold plays an integral part in this societal shift,” WGC CEO Aram Shishmanian said.

Gold has primarily been used in electronics. You’ll find the yellow metal in phones, cars, televisions and hospital monitors. Gold’s unique physical properties make it an ideal material for a wide range of electronic applications. It doesn’t corrode or tarnish like other highly conductive metals such as copper and silver. It is also a soft, pliable material and can be easily drawn out into narrow wires or plated into thin coatings.

Gold demand in the electronics sector fell off in the first half of this decade as manufacturers sought out less costly substitutes for gold bonding wire (GBW). But demand rebounded last year. The electronics sector used 265 tons of gold in 2017, a 4% increase from 2016. It marked the first year-on-year percentage growth since 2010.

There are signs that conditions are improving for gold. GBW offtake recovered last year, driving the first increase in electronics demand of this decade, and Metals Focus expects this result to be repeated again in 2018, reflecting strong markets for flash memory, automotive electronics, and various sensors. Within the memory sector, NAND flash memory provides an effective solution, both in terms of cost and performance, for solid-state storage (non-volatile storage that does not require power to retain data). GBW is the material of choice in NAND flash packaging so the robust growth of data storage in consumer electronics and enterprise servers has translated into rising gold demand.”

Demand for the gold is also growing in the healthcare field. For instance, we reported recently on tiny. wearable optical sensors made with gold that could help doctors diagnose and manage health issues in real-time. Gold nanoparticles are being used to treat cancer and to help diagnose other diseases. Gold may even help restore eyesight. Scientists have even developed tiny robots made from the yellow metal that can clean pathogens out of blood.

There are other promising tech advances using gold. Johnson Matthey, a specialty chemical and sustainable technology company, has pioneered the use of gold as a catalyst in the production of polyvinyl chloride (PVC). The process could replace mercury, a metal toxic metal that causes significant health problems.

Due to the sheer scale of the industry, significant quantities of gold will be required to convert all the reactors in China to mercury-free ones. In 2017, for example, there were more than 80 producers, whose annual PVC production totaled more than 17 million tons.”

According to the WGC, “Gold’s contribution to the technology sector underpins its value in the modern world and its ongoing role as an industrial commodity.”

We generally think of gold as an investment as well as money, but it is increasingly being used in technology and industry. Demand for gold in the tech sector has been growing since 2016. That growth will likely continue to accelerate due to new innovations. Increased demand in tech and industrial sectors will likely put upward pressure on overall demand for gold in the future.

Silver in the Green Revolution

Meanwhile, according to a Silver Institute report, the boom in green technology will consume over 1.5 billion ounces of silver through the year 2030.

Industrial use accounts for a large share of silver demand. Silver was a key component in the photographic industry for years, but demand for silver in photographic applications dropped precipitously with the advent of digital photography. Silver use in electronics and solar panels has helped take up the slack.

Industrial demand for silver rose 4% to 599 million ounces in 2017. Solar panel fabrication primarily drove that growth. Photovoltaic demand climbed 19% as solar panel installations worldwide rose 24%.  Brazing alloy and solder silver fabrication also increased, rising about 4%.

According to the Silver Institute, the ongoing green technology revolution will continue to drive industrial silver demand.

The exponential growth of new energy vehicles (NEVs) and continued investment in solar photovoltaic energy, should further boost global industrial demand for silver over the next decade and beyond.”

Silver is a key component in solar panel production. As the Silver Institute points out, the cost of installing and providing solar photovoltaic (PV) systems has fallen rapidly relative to other electrical energy sources over the past two decades. China, in particular, continues to rapidly increase solar energy production. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020. Last year ranked as the strongest on record for solar-related silver demand. Analysts estimate roughly 820 million ounces of silver will be utilized by global solar energy applications through 2030.

Silver is also used in electric cars. With a push to lower CO2 emissions, the demand for hybrid and electric vehicles will likely grow in the coming years. According to the Silver Institute, electric vehicle and battery production will account for approximately 725 million ounces of total silver demand through 2030.

Silver also has a role to play in the development of nuclear power.

Silver is used in combination with other metals to produce the reactors’ control rods.  The rod cluster control assemblies are inserted into the reactor to control the rate of fission, and as such must be made of a material that is capable of absorbing neutrons without undergoing nuclear fission itself, has a high mechanical strength, and is resistant to corrosion. One of the most common materials used is an alloy that is 80% silver, 15% indium and 5% cadmium.  Though small in terms of expected offtake at 19 Moz of total silver demand through 2030, demand for silver in this area could rise with future growth of nuclear reactors globally.”

Tech demand for both gold and silver will likely continue to increase over the next several decades. This could have a significant impact on overall demand for these precious metals. Silver demand has always been heavily influenced by industrial use, but gold is becoming more and more important in industry, especially in high tech applications. It’s important to consider these supply and demand fundamentals as you analyze the broader precious metals markets.

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