What is the Best Precious Metal to Invest in?

Is gold the best precious metal to invest in for 2023?

The best-known of the precious metals, gold is considered by many to be an excellent asset to add to an investment portfolio. Gold is a key material for jewelry, and is also used as a store of wealth by investors around the world. Indeed, many believe that it’s superior to any and all paper currencies.

The gold price is most heavily affected by global economic and political changes. Considered a safe-haven investment, the precious metal tends to receive increased attention from investors in times of turmoil. If you believe that more tumultuous times are in store, you may want to consider owning gold bullion as a hedge against these troubles.

Is 2023 a good year for gold investing? Looking at both the US and the world as a whole, many experts see a recession materializing by the third quarter of the year. The recent spate of bank failures is also fueling economic uncertainty that may further strengthen the case for gold.

"The news and everything to me is super bearish. Everything's falling apart — we're not even in a recession and banks are blowing up. You'd better be prepared to stand aside or benefit from this potential collapse," Chris Vermeulen, chief market strategist at TheTechnicalTraders.com, said in a May interview. "And if it doesn't collapse, perfect. If it goes up we'll jump on board, we'll ride the trend higher. That's the nice thing about technicals."

Looking at where the gold price may be headed in 2023, Don Durrett of GoldStockData.com gave his thoughts in a May interview. "In the short term, I think gold's going to go down somewhere between US$1,800 and US$1,850 (per ounce), and that'll be that final capitulation selling,” he said. “Once that's done, I think then as long as gold holds U$1,800 … we should get to US$2,300 this year. If we stay above US$1,800 say between now and the end of June, then I really think that gold will run fast. And silver will just — it'll come running."

While Vermeulen also thinks gold could retreat to around US$1,800, he also sees a path to greater heights.

"The breakout zone for gold which will start to get really exciting for me is about the US$2,089 level," he said. "So more or less if it can break or hold above US$2,090, especially on a monthly basis, that's the most significant price chart that I like to follow. Then we could be off to the races for US$2,600, US$2,700 gold as the next stop."

Is silver the best precious metal to invest in for 2023?

Durrett’s comment about silver “running” after gold is based on the observed market phenomenon that gold moves first in a bull market, while silver follows and typically outperforms.

Like gold, silver is also used as a store of wealth and in jewelry, but unlike its cousin, it’s also subject to a fair amount of industrial demand. Silver trading is intriguing because those applications are incredibly varied — the white metal is used in batteries, electronic devices and as a catalyst to produce industrial chemicals, but it’s also found in medical devices and in the automotive industry.

The green energy transition is adding to silver’s industrial demand side, especially in regards to its use as an electrical conductor in solar panels and electric vehicles. These segments of the market are expected to boost demand by 15 percent over the next five years.

While silver demand is projected to grow, supply of silver — much of which is produced as a by-product at lead, zinc, copper and gold mines — isn’t expected to keep up.

In the latest edition of its World Silver Survey, the Silver Institute forecasts a “hefty deficit” of 42.1 million ounces for silver in 2023. “That is a very, very wide deficit for any market to be dealing with,” according to Shree Kargutkar, managing partner at Sprott (TSX:SII,NYSE:SII).

A silver supply deficit and the precious metal’s historical outperformance of gold during periods of high inflation could create the perfect storm to propel the price of silver to a nine year high of US$30 per ounce in 2023, as per Janie Simpson, managing director at ABC Bullion.

“Silver has historically delivered gains of close to 20 (percent) per annum in years inflation is high. Given that track record, and how cheap silver remains relative to gold, it wouldn’t surprise to see silver head towards $30 per ounce this year, though that will likely offer significant resistance,” Simpson told CNBC.

However, investors should take heed of silver’s notorious volatility. As a much smaller market than gold, silver is prone to wider price swings — both to the upside and the downside. In 2023, that downside risk may come if a recession weighs down industrial demand and leads to lower inflation.

“If the Fed continues to tighten, and if inflation falls away more rapidly than the market expects, that will be a headwind for silver, especially if the economy heads into a recession, given the large share of silver demand tied to industrial output,” Simpson said.

Are palladium and platinum the best precious metals to invest in for 2023?

Sister metals palladium and platinum are also well-known precious metals. Like silver and gold, both metals are used in jewelry and are bought by investors for portfolio diversification.

However, what they’re perhaps best known for is their use in the automotive industry, specifically in catalytic converters: palladium for gasoline engines, and platinum for diesel engines.

While platinum and palladium prices sometimes also move because of worldwide economic and political volatility, they are influenced more strongly by supply and demand dynamics. In recent years, higher demand and strikes at key mines have pushed the markets for both platinum and palladium into deficit.

So what’s the outlook for platinum and palladium investing in 2023? And does one metal hold more promise than the other?

Platinum’s much stronger fundamentals make it the clear winner of the two. A cheaper alternative to palladium in catalytic converters, it's also the metal of choice for the emerging green hydrogen market. Platinum is used as a catalyst in key applications in this sector, including in electrolyzers and hydrogen fuel cells.

In 2023, platinum demand is expected to outpace supply, leading to higher prices for the metal later in the year and into the next. The World Platinum Investment Council (WPIC) is expecting 24 percent year-on-year growth in total demand, while supply is only projected to increase by 13 percent.

Platinum mine supply is being impacted by power cuts in South Africa and Russia’s war in Ukraine. South Africa and Russia are the world’s two top platinum-producing countries.

“On the demand side of the equation, we think (platinum is) pretty well protected from economic uncertainty,” Ed Sterck, director of research at the WPIC, told CNBC. As for the supply side, Sterck sees the platinum market embarking on “a sustained and prolonged deficit.”

As platinum’s light continues to shine, the outlook for palladium grows dimmer. “As an investment metal, palladium has for some time lost its luster as investors take stock of the shift towards electric vehicles and the success in substituting,” Wilma Swarts, director of platinum-group metals at Metals Focus, explained. “(In 2022), retail investment is expected to contract by 11 percent and is expected to decline further in 2023.”

Fully electric vehicles, lacking the need for catalytic converters, may not require platinum or palladium, but hybrid vehicles do. The hybrid vehicle market represents a key market for these metals, with platinum expected to dominate.

“We reiterate our preference for platinum, which is likely to benefit from the advance in gold prices and better auto growth prospects,” analysts at ANZ Research state. “Furthermore, auto manufacturers are substituting palladium with platinum given the structural deficit, on top of palladium’s supply exposure to Russia.”

The emergence of green hydrogen energy technology is also expected to benefit platinum over palladium. "Palladium has no role to play in the approaching hydrogen economy," according to René Hochreiter of NOAH Capital Markets and Sieberana Research.

The hydrogen space may not represent a significant market for platinum in 2023, but the WPIC’s Sterck said that “hydrogen-related demand for platinum is expected to grow substantially through the rest of the decade and beyond, reaching as much as 35 (percent) of total yearly platinum demand by 2040.”