For precious metals investors, 2021 will rank as a disappointing year – at least in terms of price performance. Gold and silver lagged behind the stock market as well as broad commodity indexes.
Gold showed signs of gathering upside momentum in the spring, but prices settled back down into a broad trading range for the rest of the year. The monetary metal is down about 3% for the year but will finish well off its lows.
Meanwhile, silver finished down over 9% for 2021. Silver underperformed gold in the second half of the year as prices failed to reflect rising industrial demand. Mining output also recovered from the pandemic lows of 2020. But the Silver Institute forecasts a supply deficit for 2022.
At some point, these bullish supply and demand dynamics will translate into some big upside price moves. In the meantime, silver represents a great bargain opportunity for value investors. Platinum may also be a compelling value opportunity here.
The platinum market is down about 10% for the year to trade at $974 an ounce as of this Thursday evening recording. And finally, palladium suffered the most significant price drawdown of the year after surging to a new all-time high – touching the $3,000 level in the spring.
Palladium closed Thursday at just under $2,000 per ounce, although well off the lows we saw a couple of weeks ago. Despite inflation reaching a multi-decade high in 2021, metals were treated as outcasts by Wall Street.
The S&P 500 hit new record after new record, diminishing gold’s safe-haven appeal. Stocks thrive on optimism. Gold tends to perk up on pessimism. Mainstream investors believe the narrative that the economy will continue to recover instead of entering into a period of stagflation.
Stagnation and inflation are the dominant economic realities for millions of Americans who aren’t partaking in Fed-fueled bull markets. In addition to surging stocks, the housing market will be up nearly 20% in 2021. That’s great news for homeowners.
That is terrible news for those trying to save up for a down payment. Their costs of living are outpacing their earnings. But their economic misery isn’t fully reflected in the Consumer Price Index, which omits actual home prices.
Even so, the CPI surged in 2021 to its hottest reading since 1982, coming in at 6.8%. Meanwhile, average hourly earnings increased 4.8% year over year. That represents a purchasing power loss of 2% when measured by the CPI – more when considering other measures of inflation.
A tsunami of massive deficit spending is still coming down the pike in 2022 and beyond. One aspect of the Biden agenda that will find broad bipartisan agreement is monetary policy. The Washington, DC establishment marches in near-total lockstep when it comes to supporting central bankers to suppress interest rates and buy up trillions of dollars in government bonds.
Federal Reserve Chairman Jerome Powell is likely to be confirmed for a second term. For ordinary Americans, Fed policies have contributed to rising costs of living.
The erosion of the currency’s purchasing power isn’t transitory. It’s a permanent feature of our monetary system. What is transitory are the inevitable dips in major bull markets. Yes, precious metals had a down year. But the centuries’ long track record of gold and silver in preserving purchasing power is unmatched by any other asset class.
Their record of price appreciation over the past two decades alone suggests that metals have the potential to bounce back and outperform in the years ahead – especially if stagflation becomes an economic theme starting in 2022.