Gold: During Warfare, a Literal Shield

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Surprising Uses of Gold in Defense Industries

Recent military flare-ups have reminded investors that peace is not a mainstay. The U.S. has, economics aside, not truly been impacted by war in some decades. These days, however, we have President Biden saying that the U.S. will side with Taiwan if China attempts to invade it with its considerable military might. Russia, too, seems keen on taking over Ukraine and therefore pulling the rest of the world into the conflict.

Things like this reiterate that having a good, well-functioning military is important. Many will be ready to say that the U.S. has not been impacted by war in decades primarily because of its status as the largest military superpower. But how many know that gold is playing a key role in the military’s defenses?

Gold: as crucial in warfare as “beans and bullets”

The average investor cares about gold’s price quite a bit, and even the non-average ones will pay attention to them. The military-industrial complex does not. The army wants, and indeed needs, the best tools made from the best materials at all times. If gold is a key component in military systems, it doesn’t matter if an ounce is $50, $500 or $5,000. And a key component it is. In an interesting, if expected way, the military likes gold for similar reasons that investors do.

Anti-oxidation coatings

Oxidization is a process that turns metals into scrap, and gold doesn’t oxidize. Coating missile components in gold will protect them from environmental conditions such as heat or humidity that would quickly ruin other metals and certainly delicate components.

Thermal protection

Lack of corrosion is just the start, though. Gold not only handles heat well, but it spreads it out much better than other materials. Plating a piece of military hardware with gold will allow it to withstand temperatures of up to 257 degrees Fahrenheit. Use another material, and your missile might explode prematurely.

Low-friction qualities

Even more, gold plating lowers friction with other materials. Ground defense systems use a lot of moving components, as do other military staples. This means wear and tear, a nasty side-effect that can be avoided by coating various parts of the object in gold. All of this is made possible by gold’s extreme permeability.

Conductivity

It’s well-known that gold is one of the most liquid assets in finance. Besides being traded by the billion every day, you might find a place where you can’t buy gold, but you aren’t likely to find one where you can’t sell it.

This liquidity translates in the most literal sense in military use. It allows engineers to place gold virtually anywhere inside a piece of hardware, whether for aforementioned shielding or in order to facilitate electrical conductivity. As any chemist can tell you, gold is the most conductive material, beating the widely-used copper by a fair margin.

And, since it doesn’t erode as opposed to copper and other metals, its use in military components can allow them to last for decades whereas they might otherwise break much sooner.

Adding it all up

Over 320 tons of gold are used in the electronics industry every year, and if more was used, built-in obsolescence might not be a thing.

Then there’s appearance, too. We all know about gold jewelry. We like it, but not as much as people in Asia. But if you thought that the military-industrial complex doesn’t like it, you’re kidding yourselves.

Silver Shines Brighter than Gold on Electric Vehicle Demand

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Silver Outshines Gold on Electrical Vehicle Demand

As seen on Kitco, silver’s many uses continue to entice investors with possibilities of price gains from more corners than in the case of gold. In a recent report, John Feeney, business development manager at Guardian Vaults, shared his view of why silver has everything going for it in the current landscape.

Despite a recently-sprung grassroots movement that has turned silver into Main Street’s favored investment, silver has yet to really take off from its $24 support level. And while many correctly attribute this to a disconnect between the paper and physical market, Feeney expects silver’s broad-based demand sources to eventually be reflected in rising prices.

Feeney believes silver will attract more and more investors as they wake up to our economic reality. Despite optimistic claims, the Federal Reserve is in no position to tighten monetary policy or normalize interest rates. Because the modern global economy relies on debt, interest rates must be kept extremely low to avoid a collapse. More money must be printed. This is the same investment case that has many excited for gold moving forward.

However, the case for silver extends far past that. Whereas gold’s detractors like to lament how the metal is a throwback, silver is as futuristic of an investment as one can hope for (despite being around for centuries). And, unlike other futuristic investments, it doesn’t carry a massive amount of risk.

Why futuristic? Well, there are three huge and growing sources of demand: photovoltaics for solar panels, superpowered next-generation batteries and electrical vehicles.

Feeney refers to data from the World Silver Institute, which projects that silver usage in electric vehicles is expected to grow to 90 million ounces by 2025, with demand expected to grow to more than 100,000 ounces by 2030. Whether one wants to fully embrace these forecasts or not, the writing is on the wall in regards to EVs, manufacturing and silver supply.

Partly because of government incentives and partly because of customer interest, demand for EVs has risen exponentially, and is only expected to continue to climb. Manufacturers have long used “thrifting,” a way of spreading out silver as much as possible, in order to cut back costs. Yet these methods are nearing their natural point of exhaustion (at a certain point you just can’t become more efficient). At this point there will be no alternative but to use the necessary silver to manufacture the device, regardless of cost.

On the flip side, silver has one of the more complicated supply pictures, with much of it coming as a byproduct of mining other metals. Therefore, the physical silver market is even worse equipped to deal with a sudden increase in demand than the gold market. Because of all of this, Feeney makes a point of embracing silver’s volatile bouts and encourages investors to buy the dip in what is looking like a very promising investment.

The Massive Russian Bank Going All-In on Gold

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Central Bank of Russia
Founded in 1860, The Bank of Russia is the central bank of the Russian Federation. Konstantin Mikhaylovich Bykovsky designed the bank’s current headquarters on Neglinnaya Street, Moscow in 1894.  Image © Anton Belitsky/Global Look Press

Russia’s central bank has been a big buyer of gold for the past few years, but now comes news that one of the nation’s largest banks has been doing the same. See their motivations for doing so here.

Russia’s portfolio diversification blueprint is well-known. Over the past few years, the country has established itself as the top gold buyer by a significant margin. Its central bank buoyed gold prices and spurred demand on a consistent monthly basis, almost invariably dipping into double-digit tonnage purchases each month.

Heading up to 2018, there were a few other consistent sovereign gold buyers, though none approached the Kremlin’s appetite for the yellow metal. The voracious appetite has allowed Russia to both keep its currency afloat and lessen U.S. dollar dependence, the latter being a key method of avoiding sanctions. 2018 and 2019 were surprise years for many gold market watchers, as numerous countries went on a gold binge and China’s purchases actually overtook that of Russia. Similarly to the case of Russia, China’s spree had much to do with yuan oscillations and a rapid worsening of trade relations with the U.S.

Now, Russia’s central bank has found itself facing a new competitor in terms of bullion purchases, this time from the private sector. VTB Bank PJSC ranks among the nation’s biggest banks and is its second-biggest lender. In line with Russia’s general pro-gold attitude, VTB Bank employs a strategy that revolves heavily around physical gold trading.

It also boasts a gold stockpile that rivals that of many sovereign countries, let alone private institutions. As of October, the bank held a massive gold reserve of 59.5 tons, as well as the status of Russia’s top gold buyer. The second accolade was made possible as most central banks temporarily halted their purchases due to all-time high prices on the back of unparalleled investment demand.

VTB’s focus on gold has done wonders for its bottom line, as its bullion-trading profits so far this year exceed those of the previous three years combined. Among other things, the bank invests heavily into the mining sector, with its co-head of global banking Alex Metherell noting that Russia sports a favorable geographical position with abundant gold reserves.

Two weeks ago, VTB announced that it would launch Russia’s first gold-backed derivative. The expansion into the sphere highlights the bank’s expectations that gold will continue to outperform amid unprecedented global uncertainty after posting what is undoubtedly one of the best years on record. The launch of a gold derivative is certainly timely, as this year’s investment demand for gold has also translated to sky-high institutional holdings.

Commenting on the precious metals sector as a whole, VTB’s First Deputy Chairman Yuri Soloviev also said that platinum and palladium are poised to become big gainers as monetary stimulus is poured into the global economy, tying into expectations that silver is scheduled for a jump on the back of recovery-fueled industrial demand.

The Simple Reason Gold Fell with Stocks Last Week

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Although most assume that gold would have surged, this is not without precedent, with past cases resulting in massive upside for gold prices. See why here.

As the coronavirus crisis worsens throughout China and the rest of the world, the global market has seen its sharpest decline since the 2008 financial crisis. Virtually all equities plunged last week as traders rushed to dump their assets in favor of cash, with the Dow losing as much as 3,600 points within the week.

Some analysts found it curious that gold and silver prices also fell, with the metal dropping from about $1,640 to the $1,560 range during Friday’s trading session. Gold is known for its hedging properties and generally prospers as a consequence of stock selloffs, making the parallel action come off as unusual.

Yet upon closer inspection, one can see that a mutual selloff in both markets is not without precedent, and that similar cases in the past have resulted in massive upside for gold once the dust settled. Last year, much was said about the peculiarity of gold moving up together with stocks, considering the latter are seen as the metal’s biggest competitor. As gold kept climbing, however, it became clear that the metal’s numerous drivers and sturdy fundamentals were powering the gains as opposed to sentiment.

As various experts have explained, the precious metals selloff shouldn’t be of particular concern to gold investors as a massive wave of panic has taken hold of the markets. Peter Spina, president and CEO of GoldSeek.com, pointed out that some of the selling is a result of a general selloff by large funds, which recently increased their positioning in the gold market by a wide margin. Likewise, Peter Grant, vice president of precious metals at Zaner Metals, pointed out that the threat of contagion has significantly hampered physical transactions in China and India, two of the world’s biggest buyers whose bullion investors tend to favor in-person purchases.

Brien Lundin, editor of Gold Newsletter, noted that silver’s decline is also tied to diminished industrial demand, as the coronavirus has impacted both the commodity and energy markets. The already-skewed gold/silver ratio has now climbed above 95, exceeding last year’s peak and nearing its all-time high.

Despite the selling pressure from the past few days, there are good reasons to be excited about gold prices moving forward. Lundin pointed out that this kind of price action is part and parcel of any global crisis, as central banks invariably respond to damaged economies by introducing massive amounts of stimulus. The 2008 financial crisis, which ended up moving gold prices to all-time highs, was an example of investors recognizing that loose central bank policies are causing just as much damage to the economy as the crisis itself.

As in 2008, Lundin expects multiple rate cuts, quantitative easing and increased government spending in response to the crisis. Given gold’s tremendously positive response to successive and unexpected rate cuts in 2019, Lundin predicts that the coronavirus crisis will ultimately prove far more beneficial than detrimental to the precious metals market, adding that prices could retake their upwards trajectory with much greater vigor in the coming weeks and months.

These 4 Factors Holding Back Gold, Will Likely Start Benefiting The Yellow Metal

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With all the speculation surrounding gold prices, one report claims that it likely has nowhere to go but up. Read why here.

These 4 Factors Holding Back Gold, Will Likely Start Benefiting the Yellow Metal

This week, Your News to Know brings you the most relevant news stories about the state of the gold market and the overall economy. Stories include: Why gold might finally be nearing a bottom, 3 reasons to be bullish on gold in 2016, and Lawrie Williams’ take on gold in 2016.

THE CASE FOR WHY GOLD COULD FINALLY REACH ITS BOTTOM

In a recent email interview with Myra Saefong of MarketWatch, George Milling-Stanley expressed his thoughtson the road ahead for gold. Milling-Stanley is no stranger to precious metal and its dealings, being the head of investment strategy at State Street Global Advisors.

Much of the interview revolves around a single question: Could gold finally be nearing its bottom? Milling-Stanley believes that it might very well be and provides some solid arguments in favor of this.

Ever since 2013, gold has been bouncing back and forth inside a price range of $1,050-$1,350. It has thus far been unable to break past the upper limits of this range despite record sales of bullion coins – Milling-Stanley believes four factors are preventing a breakthrough, each of them being equally effective: The dollar’s strength, the continued absence of inflation, the strength in U.S. equities and complacency in the face of risk. The latter became especially pronounced in the wake of attacks in Paris, as gold remained in the same spot despite its status as a safe-haven asset. For the time being, gold is locked within its range, but eventually each of these four factors will change favorably for the metal.

And what about the lower end of the range? Milling-Stanley doesn’t think the metal can go much further down, insisting it’s near its bottom and dismissing the possibility of an interest rates hike having any lasting impact: “There may be a short-term, knee-jerk downward move when higher interest rates become a reality, but I do not expect higher interest rates to exert any sustained downward pressure on gold prices,” he says. The main reason for this is simple: The current gold price already takes a rates hike into account as if it had already happened.

For gold to dip past $1,050 in any relevant way, significant weakness would have to occur in internal market fundamentals (the balance between supply and demand). “It is difficult to imagine where such weakness might occur,” Milling-Stanley notes, adding that any of the aforementioned four factors becoming more pronounced is similarly “hard to envisage”.

3 REASONS TO BE BULLISH ON GOLD IN 2016

Despite HSBC’s recent bearish stance on gold, the firm is now calling for a bounce back in 2016. As reported by Jonathan Ratner on Financial Post, chief HSBC precious metals analyst James Steel has given us three good reasons to get more bullish on bullion.

The first comes in the form of emerging-market demand: Together, China and India account for nearly two-thirds of global gold consumption and are expected to further increase their buying in the future. Steel reminds us that emerging-market investors are sensitive, staying away when gold nears $1,300 and flocking to it as it moves around $1,100.

The second reason is the expected rally of the euro versus the dollar, as gold has been known to have an inverse relationship with the greenback. Despite a possible rates hike, the dollar stands to weaken either due to a shortened tightening cycle by the U.S. central bank or a reversal of its tightening policies caused by low inflation or weak growth.

Lastly, Steel forecasts that gold exchange traded funds (ETFs) will become net buyers again after three years of selling, and also expects net positions in areas such as the COMEX to rise.

LAWRENCE WILLIAMS ASKS: WHAT WILL GOLD DO NEXT YEAR?

As retail holiday events take their turns ahead of the fast-approaching 2016, Lawrence Williams asks an important question: What will the yellow metal do next year?

On Sharps Pixley, he contrasts the view of analysts in a negative-tone within a Wall Street Journal (WSJ) article with any number of different situations that could benefit the metal. One important point to remember: The dull and pessimistic prediction seen on WSJ still isn’t bad for gold at all.

The bank analysts polled by WSJ generally agree that gold should have a flat upcoming year with an average price of $1,114 an ounce, but seemingly fail to acknowledge that this ‘bleak’ outlook is actually an improvement over the current situation and seemingly guarantees a slightly-better year for the metal.

But what if things take a turn for the unexpected – could gold go much higher than intended? Demand has certainly been on the increase, with both India and China (the world’s largest consumers of the metal) seeing record imports. Central banks further drive demand for physical gold up by buying what Williams estimates could be 400-500 tons a year. When coupled with low prices that are halting mining operations, this heightened demand from around the globe will have to cause a supply squeeze eventually, although this realization still isn’t doing much for gold prices.

Gold has been doing great in plenty of currencies other than the one it’s valued in by most investors: The dollar. For gold to rise against the dollar, the value of the greenback would have to fall, but Williams doesn’t find this to be such an unlikely scenario; given the big balance of payments deficit and the adverse effects a higher dollar would have on the domestic economy, the Fed might not want it increasing in value any further. Consequently, the Fed might actually take steps to keep its currency under control.

Other than the Fed acting against the dollar, any one out of a number of possible ‘black swan’ events could go off at any moment and cause bullion demand to spike: Another national debt default or a geopolitical conflict taking a turn for the worse are just some examples of possible catalysts for gold’s ascension. Whichever the case, Williams believes that gold should do just fine in 2016.

photo credit: Gold Bars in Golden Bullion Shop via photopin
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