Understanding the Global Precious Metals Market: Insights from Philip Newman, Managing Director of Metals Focus

In a recent episode of the Money Metals podcast, host Mike Maharrey sat down with Philip Newman, Managing Director of Metals Focus, to delve into the current state of the global precious metals market. 

Newman, with nearly three decades of experience in the field, provided a detailed overview of market trends, statistics, and the factors driving supply and demand across different regions.

(Interview Begins Around 5:30 Mark)

Who is Philip Newman? 

Philip Newman is the Managing Director of Metals Focus, a leading independent precious metals consultancy based in London, England. He is one of the founding partners of the company, which specializes in providing market intelligence on gold, silver, platinum, and other precious metals. With 29+ years of experience in the precious metals industry, Newman has a deep understanding of market trends, supply and demand dynamics, and the factors influencing prices in the global precious metals markets.

Before founding Metals Focus, Newman was the Research Director at GFMS, a prominent precious metals research firm. During his time at GFMS, he was a key contributor to and project manager of major reports and surveys, including those on silver, gold, and platinum group metals (PGMs). Newman holds a Bachelor of Science degree from the University of Surrey. His expertise and insights are highly valued in the industry, making him a sought-after analyst and commentator on precious metals markets.

Overview of Metals Focus

Metals Focus, co-owned by Newman and two other managing directors, is a leading provider of independent market intelligence on precious metals. The company boasts a team of around 30 experts spread across eight global markets, enabling them to offer in-depth insights into the silver, gold, and platinum group metals (PGMs) markets. Metals Focus collaborates with major industry entities such as the Silver Institute, World Gold Council, and World Platinum Investment Council, producing key reports like the World Silver Survey and Gold Demand Trends.

The Silver Market Deficit

One of the central topics of discussion was the ongoing deficit in the silver market. Newman highlighted that silver has been in a significant market deficit for the past few years, with more silver being consumed than produced and recycled. In 2022, the deficit reached a record 260 million ounces, and although Newman doesn’t foresee this record being eclipsed, he expects the deficit to remain substantial, potentially around 190 million ounces in 2023.

The deficit has primarily been driven by soaring demand in the industrial sector. Silver used in industrial applications has seen remarkable growth, rising from 500 million ounces in 2020 to over 650 million ounces in 2022. This demand is expected to exceed 700 million ounces in 2023, driven largely by the green energy movement, particularly in solar panel production. Newman noted that China accounts for about half of the global new solar capacity, with other countries also ramping up their installations.

Addressing the Deficit: Where is the Silver Coming From?

With such a significant deficit, the question arises: where is the silver coming from? Newman explained that the gap is being filled by drawing down existing stocks, particularly large bars held in identifiable stocks such as the London Bullion Market Association (LBMA) vaults, the CME in New York, and locations in China like the Shanghai Gold Exchange and the Shanghai Futures Exchange. However, as these stocks dwindle, the market will need to see higher prices to encourage investors to liquidate their holdings and balance the market.

The Gold-Silver Ratio and Market Dynamics

The conversation also touched on the gold-silver ratio, which has remained elevated at around 85:1, indicating that silver has not kept pace with gold's price surge. Newman attributed this to a combination of factors, including gold receiving a strong bid due to expectations of dovish actions from the Federal Reserve and macroeconomic uncertainties, while silver has been weighed down by concerns about the Chinese economy, particularly in the property sector.

Additionally, the silver coin and bar market has struggled recently, with demand in major markets like the U.S., Germany, and Australia significantly weaker than in previous years. Newman noted that this has been a contributing factor to the lagging silver price despite the ongoing deficit.

Gold Demand Driven by the East

Newman also discussed the dynamics of the gold market, noting that much of the recent demand has been driven by Eastern markets, particularly China and India. In the first half of 2023, China saw strong demand for gold coins and bars, with premiums remaining high. India also experienced a surge in demand following an unexpected and significant cut in import duties on precious metals in July 2023, which spurred consumers to flock to gold shops despite rising prices.

In contrast, Western markets like the U.S. and Europe have seen mixed results. While there has been notable liquidation of gold by retail investors in the U.S., dealers have managed to turn these liquidations around by selling to other investors. However, the market for small bars and coins has been relatively weak, particularly in Germany and much of Europe.

The Importance of Market Psychology

Throughout the conversation, Newman emphasized the importance of understanding market psychology, particularly in how consumers and investors react to price movements. He pointed out that while analysts may view certain behaviors as irrational, they are often perfectly rational from the perspective of the individuals involved. This understanding is crucial in predicting market movements, particularly in the silver market, where technological advancements in solar panel production are leading to both increased demand and efforts to reduce silver usage through thrifting.

Conclusion

Newman’s insights provided a comprehensive overview of the current state of the precious metals markets, highlighting the complexities and global nature of these markets. As silver continues to experience significant deficits and gold demand shifts towards Eastern markets, the importance of market psychology and the factors driving supply and demand cannot be understated. For investors and analysts alike, staying informed on these dynamics is essential for navigating the ever-evolving landscape of precious metals.

For more detailed insights and data, visit Metals Focus at metalsfocus.com.

Key Questions & Answers:

Here are the key questions and answers from the episode of the Money Metals podcast featuring Philip Newman, Managing Director of Metals Focus:

Can you give us an overview of what you do at Metals Focus?

Philip Newman explained that Metals Focus is an independent consultancy providing market intelligence on precious metals. The company has a team of about 30 experts across eight global markets. They gather insights through confidential meetings with industry participants, producing reports for organizations like the Silver Institute, World Gold Council, and World Platinum Investment Council.

What is driving the significant silver market deficit we've seen in recent years?

Newman noted that the deficit is primarily due to stable supply from mine production and recycling, contrasted with a surge in demand, particularly in industrial applications. He highlighted that industrial silver usage grew from 500 million ounces in 2020 to over 650 million ounces in 2022, with expectations to surpass 700 million ounces in 2023. This increase is largely driven by the green energy sector, especially solar panel production.

Has the green energy movement, particularly solar panel production and electric vehicles, contributed to the silver demand surge?

Newman confirmed that the solar sector has significantly driven silver demand, with record highs in new installations, especially in China. Although the growth in electric vehicles has been slower than anticipated, it still positively contributes to silver demand.

How sustainable is the current silver deficit, and where is the silver coming from to meet demand?

Newman explained that the deficit is being met by drawing down existing silver stocks, particularly large bars held in identifiable vaults like those of the LBMA and CME. However, as these stocks deplete, higher prices may be necessary to encourage investors to liquidate their holdings.

What is holding back the silver market from catching up with gold, and what might drive the gold-silver ratio to narrow?

Newman attributed the high gold-silver ratio to several factors, including the strong bid for gold due to expectations of dovish Federal Reserve actions and macroeconomic uncertainties. In contrast, silver has been weighed down by concerns about the Chinese economy and weak demand in the silver coin and bar markets.

Has gold demand been primarily driven by the East, while Western investors have remained on the sidelines?

Newman confirmed that much of the recent gold demand has come from Eastern markets like China and India. He noted strong coin and bar demand in these regions, especially after India’s significant cut in import duties in July 2023. In contrast, Western markets, particularly the U.S. and Europe, have seen mixed results, with notable liquidations in the U.S. but some buying interest from high-net-worth individuals.

Is there something you've noticed in the data that you think a lot of people are missing?

Newman highlighted a few points, including the relatively modest response from scrap gold supply despite high prices and the complex dynamics of consumer behavior in the gold market. He also discussed the ongoing technological advancements in solar panel production that, despite efforts to reduce silver usage, continue to drive record silver demand.

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