SA's role in precious metals

Schalk Louw gives an overview of how precious metal prices are correlated with inflation.

- Schalk Louw

The end of the Covid-19 pandemic is not yet in sight, and people are already speculating about the next big risk to the investment world. One such risk must be the concern around inflation that may get out of hand globally due to an increase in money supply as a result of multiple stimulus packages. Rather than discussing the potential impact if US inflation risks get out of hand, like they did in the 1970s, I want to consider if there is a potential correlation between US inflation and precious metal earnings and the potential impact for South Africa.

When we look at one of the most renowned precious metal indices, the S&P GSCI Precious Metals Index, and we place its annual performance relative to US inflation growth (CPI), there is little doubt as to whether these two statistically walk hand in hand. In fact, the link between these two is strong, with precious metals historically performing very well during times where inflation skyrocketed. I need to make it clear that the S&P GSCI Precious Metals Index only consists of gold and silver, which is technically not quite correct. Very briefly, precious metals are metals that have a high economic value linked to them.

Gold