Sprott is a Toronto-headquartered asset manager specializing in precious metals and critical materials (NYSE/TSX: SII), tracing its roots to Sprott Securities founded by Eric Sprott in 1981 and now led by CEO Whitney George. It runs physical gold, silver and uranium trusts, ETFs, active strategies and resource lending, with about $65bn in AUM. The Insights column carries monthly commentaries and white papers on uranium, gold, silver, copper and critical materials by Paul Wong, Jacob White and John Hathaway (ex-Tocqueville gold manager) — note the house's structurally bullish commodity stance, as it sells the corresponding trusts and ETFs.
Gold prices are down, but central banks—especially China's—keep buying, which supports the price. Silver is getting a big boost from green tech like solar panels and EVs, and supply may fall short. Meanwhile, investors are pulling money out of gold and silver ETFs, creating a pessimistic mood that could actually set the stage for a future rebound. Bottom line: gold has central bank backing, silver has industrial demand, but expect short-term volatility.
Sprott's report notes that in the third quarter of 2023, gold edged down 3.68% to $1,848.63, while silver fell 2.61% to $22.18, primarily pressured by a stronger U.S. dollar and rising bond yields. Investment demand remained weak, with gold ETF holdings dropping to levels seen in the first quarter o
This chapter focuses on the performance of the gold and silver markets in the third quarter of 2023, analyzing the pressure on precious metal prices under a macroeconomic environment of a strengthening US dollar and surging bond yields. The report specifically highlights the divergence between weak investment demand and sovereign demand (particularly from China), as well as the driving role of green technology in industrial demand for silver.
The author’s key judgment is: Despite a significant exodus of investment capital, sustained purchases by sovereign entities and central banks (especially China) provide a price floor for gold. The counterintuitive point is that gold ETF holdings and CFTC speculative positions have approached historically extreme lows (Z-score below -2), which instead sets the stage for potential short squeezes in the future. For silver, green technology (solar energy, electric vehicles, 5G) has become the largest driver of demand, and is expected to keep the market in a persistent supply deficit.
1. Macro Headwinds: The US Dollar Index (DXY) rose for 11 consecutive weeks to 106.17, the 10-year US Treasury yield climbed to 4.57% (the highest since 2007), and the real yield reached 2.23% (the highest since 2009). Historically, simultaneous increases in the dollar, real yields, and crude oil prices harm risk assets through liquidity channels.
2. Collapse in Investment Demand: Gold ETF holdings fell to 88.06 million ounces (returning to Q1 2020 levels), and silver ETF holdings dropped to 714.08 million ounces (net selling for six consecutive quarters). The two-year Z-score of combined CFTC net non-commercial long positions and ETF holdings for gold broke below -2 for the first time (i.e., more than two standard deviations below the historical mean). From the 2023 peak, CFTC long position reductions accounted for about 20% of the decline in holdings, while short position additions and ETF selling each accounted for about 40%, indicating the market is highly vulnerable to a potential short squeeze.
3. Support from Chinese Demand: China is the world’s largest gold consumer. The Shanghai gold premium has recently surged because the weakening renminbi led the People’s Bank of China (PBoC) to suspend issuing new gold import quotas, tightening domestic supply. The report argues that the PBoC’s official reports may underestimate actual gold holdings. If the PBoC were to raise its official gold reserves to the global central bank average, it would need to purchase several hundred more tons of gold.
4. Industrial Demand for Silver: Green technology (solar panels, electric vehicles, 5G) has become the largest source of demand for silver. Industrial demand is expected to push the silver market into a supply deficit again this year, creating a significant market imbalance in the future.
Quarterly Performance Comparison Table:
| Indicator | 2023/9/30 | 2023/6/30 | Quarterly Change | Quarterly % Change | YTD % Change |
|---|---|---|---|---|---|
| Gold Spot | $1,848.63 | $1,919.35 | -$70.72 | -3.68% | +1.35% |
| Silver Spot | $22.18 | $22.77 | -$0.60 | -2.61% | -7.41% |
| NYSE Arca Gold Miners (GDM) | 749.58 | 836.38 | -86.80 | -10.38% | -6.94% |
| US Dollar Index (DXY) | 106.17 | 102.91 | +3.26 | +3.17% | -2.56% |
| US 10-Year Treasury Yield | 4.57% | 3.84% | +0.73% | +46 BPS | +70 BPS |
| Total Gold ETF Holdings (Moz) | 88.06 | 92.53 | -4.47 | -4.84% | -6.08% |
| Total Silver ETF Holdings (Moz) | 714.08 | 746.43 | -32.34 | -4.33% | -4.66% |
1. Gold: Accumulate on dips, focus on Chinese demand. Investment sentiment is extremely pessimistic (Z-score < -2), but sovereign purchases (especially from China) provide a solid floor. If the macro environment (dollar, yields) turns, gold could rally sharply due to short covering. Investors may consider increasing allocations during price pullbacks.
2. Silver: Long-term opportunity amid structural deficit. Industrial demand from green technology (solar, EVs, 5G) is a long-term driver, expected to sustain supply deficits. Current price weakness (around $22) offers a favorable entry window, though short-term macro headwinds should be noted.
3. Mining Stocks: High elasticity but high volatility. Gold mining stocks (GDM) fell more sharply (-10.38%) than physical gold (-3.68%) in the quarter, reflecting their high-beta nature. If gold prices rebound, mining stocks offer greater elasticity, but risks are elevated in the current environment, making them suitable for investors with higher risk tolerance.
This chapter focuses on how China’s strategic demand for gold is reshaping global gold flow patterns, and the threat posed by the deep sell-off in the U.S. long-term Treasury market to financial stability. Meanwhile, the report analyzes the structural demand growth for silver driven by green technologies, particularly photovoltaics.
The author’s central judgment is that China is forcefully attracting gold from the West to the East through means such as the Shanghai gold premium and import quotas, a trend that has not been altered even by rising gold prices. Behind this phenomenon lies China’s strategic intent to de-dollarize, internationalize the renminbi, and navigate geopolitical tensions. Additionally, the report argues that U.S. long-term Treasuries are experiencing an unprecedented negative convexity crisis, which could trigger systemic risks similar to the UK LDI crisis or the U.S. regional banking crisis, with gold benefiting in such a “devaluation trade” scenario.
1. Shanghai Gold Premium Hits Record Highs: The average premium was 2.18% in August 2023 and 4.04% in September 2023 (the highest monthly average on record). The surge in the premium indicates tight domestic supply-demand dynamics in China, with the People’s Bank of China (PBoC) limiting renminbi selling by adjusting import quotas.
2. Shift in Relationship Between Gold Imports and Premium After Russia-Ukraine War: Comparing data from 2017-2023, after the war (post-February 2022), the Shanghai gold premium and import volumes show a significantly stronger positive correlation, with both the premium and import levels substantially higher than pre-war levels.
3. Deep Drawdown in U.S. Long-Term Treasuries: The Bloomberg U.S. Long Treasury Total Return Index has fallen -42.5% from its peak, experiencing an unprecedented third consecutive year of losses. The ICE BofA MOVE Index (Treasury option implied volatility) has surged, reflecting market panic.
4. Persistent Silver Market Deficit: The silver market is projected to face a supply deficit of 142 million ounces in 2023. Photovoltaics (solar panels) are the largest driver of silver demand, and the cost of solar power generation has fallen to among the lowest of all electricity sources.
Key Comparative Data Table:
| Indicator | Pre-War (2017-2022.2) | Post-War (2022.2-2023.9) | Change |
|---|---|---|---|
| Correlation: Shanghai Gold Premium & Imports | Weak/Irregular | Strong Positive Correlation | Significantly Strengthened |
| Shanghai Gold Premium Level | Low, Low Volatility | Record High (4.04% in Sept) | Sharp Surge |
| China Gold Import Volume | Relatively Stable | Significantly Increased (Expected higher after July data) | Trend Upward |
This chapter focuses on how the ultra-high growth of the solar photovoltaic (PV) industry is reshaping the structure of silver demand. The report points out that solar energy has become the core driver of the global clean energy transition, with its installed capacity growth rate expected to surpass all other energy sources. As a key material for solar cells, silver demand is accelerating its shift from traditional industrial uses to green technology sectors.
The author’s core judgment is that silver demand from the solar industry is entering a "near-rigid" growth phase, which is difficult to suppress even if silver prices rise, because silver’s electrical conductivity is nearly irreplaceable under current technologies. The counterintuitive aspect is that, despite years of "silver thrifting" in solar cells, new technology routes (TOPCon, HJT) actually require more silver, meaning silver demand will accelerate rather than slow down.
1. Solar Dominance in Installed Capacity: Renewable energy is expected to account for 98% of global new power generation capacity additions, with solar growing the fastest (Figure 6). The cost of solar power has fallen to half that of natural gas and about two-thirds that of coal, on par with wind power.
2. Soaring Share of Silver Demand:
3. Technology Route Shifts Drive Up Silver Usage:
| Cell Technology | 2022 Market Share | 2023 Estimated Market Share | Silver Usage per Watt (mg) |
|---|---|---|---|
| PERC | 88% | 76% | 10 |
| TOPCon | 8% | 18% | 13 |
| HJT | 0.6% | 3% | 22 |
4. Supply-Side Bottlenecks:
1. Strengthened "Hybrid Valuation" of Silver: Silver retains its store-of-value function as a precious metal (its ratio and correlation with gold remain unchanged) while gaining industrial demand support from solar, the world’s fastest-growing industry. Investors should focus on silver’s long-term premium as a "green technology metal."
2. Supply Rigidity Creates Price Elasticity: Since 80% of silver is a byproduct, miners have limited ability to respond to price increases, meaning demand growth will directly translate into upward price pressure. Overweighting silver and related mining stocks is recommended.
3. Technology Route Risk: If HJT (high silver usage) gains market share faster than expected (only 3% in 2023), silver demand growth could accelerate further. The cost competition between TOPCon and HJT, as well as progress in silver substitution technologies, should be monitored.
4. Geopolitical Supply Chain Risk: China accounts for 80% of the global PV supply chain. Any policy or trade friction could disrupt the pace of silver demand, but the long-term trend remains unchanged.