Commodities have price cycles between supply and demand imbalances. Sometimes the imbalance is caused by a supply shock, such as a war or a weather event. Sometimes it is a demand shock caused by unexpected growth in a specific market sector.
Beyond the shocks, there are natural imbalances that arise when demand increases, yet there has been underinvestment in supply, or supply production is too slow to address the immediate demand. This is likely to occur in metals markets, which need a long lead time to mine and process ore.
Mining is capital-intensive, and if the return from mining is uncertain or too low relative to other investments, capital will move to other sectors, leading to a supply shortfall.
The supply and demand imbalance in metals is especially problematic because demand increases are hard to respond to when supply production has a long lead time. This issue gets worse when there are supply chain shocks. Mining supply change shocks occur when one supplier drives price, and there are limited alternatives for finding new supply.
The current supply-demand imbalance is not just a gold problem, but a silver problem. In fact, there is a supply imbalance with nickel, cobalt, copper, palladium, rhodium, and aluminium, along with a rare earths supply change problem. Surprisingly, all of these imbalances have been documented yet are only now being recognized.
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