Commodity Watch: Metals Never Die

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>Tiffany’s was unhappy. On March 26, 1980, the company took out a full-page ad in the New York Times declaring "We think it is unconscionable for anyone to hoard several billion, yes billion, dollars’ worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver from baby spoons to tea sets…”. This came on the heels of a sevenfold increase in the price of silver in 1979- a rally spurred by the Hunt brothers’ attempt to corner the silver market. New regulatory rules in January 1980 limiting margin buying (COMEX’s "Silver Rule 7") started to unwind the rally and culminated in a one-day 50% drop on March 27, 1980 (Tiffany’s could have saved themselves the ad money). Silver didn’t recover its $50/oz price until 2025.</p><p>Large declines in metal prices happen. But they don’t always signal the end of a supercycle. Twice in the last 50 years, gold and silver crashed in the middle of a multi-year commodity cycle only to rally substantially in subsequent years. After rallying in the early 1970s, the price of gold fell 47% and silver fell 43% between 1975 and 1976. &nbsp;Prices then rallied 4x and 9x respectively to finish the decade. A similar trend happened after the global financial crisis. Gold lost 30% of its value and silver crashed by 58% in the two quarters post the GFC before rallying 1.7x and 4.5x through 2011 when the last commodity super cycle effectively ended.</p><p>Two points to consider.</p><p>First, the case for each metal is changing. In the last five years, for example, silver demand has outstripped supply by ~800 million ounces as industrial usage for silver in electronics, batteries, EVs and solar panels increases demand (it’s not just silverware and jewellery anymore). Supply, on the other hand, is increasingly dependent on the production of other metals such as copper, zinc and lead (where silver is a byproduct) because no new pure silver mines have come online in the last decade.</p><p>Gold, on the other hand, is becoming more of a geopolitical asset. Although the markets seem assured by the new Fed pick (for now), the market in metals is no longer influenced by one actor. Rather, multiple actors will influence price. The FT recently reported that China’s leadership is seeking global reserve currency status for the Renminbi. Upstart global reserve currencies need an anchor to start. Gold remains the best option. That creates inelastic demand for the oldest and continuously used store of value in history as different actors seek it for leverage and independence.</p><p>Volatility is the second point. Price volatility can bankrupt anybody. The Hunts, one of the wealthiest families in 20th century and became the world’s largest debtors when silver prices crashed in 1980. Betting on price movements can be difficult at best and is not for the faint-hearted.</p><p>Yet demand for these metals is increasing driven by industrial needs and geopolitical factors. Private capital can benefit from that demand by financing the production, processing, transport and storage. An investment approach using the right instruments may dampen volatility, generate income and benefit from inelastic demand. In turn, that may help investors generate returns from assets essential to the world today.</p>