What Really Drives Gold, Silver, and Precious Metals Prices (And How to Find Your Edge)

About 40% of platinum and 80% of palladium goes into catalytic converters for vehicles. This creates a direct link between auto sales and PGM prices.

Platinum is used primarily in diesel catalysts, while palladium is used in gasoline vehicles. This distinction created dramatically different price patterns as diesel lost favor after various emissions scandals.

Production is highly concentrated geographically:

• South Africa produces about 70% of platinum
• Russia produces about 40% of palladium

This concentration creates significant supply risk. Labour strikes in South Africa or sanctions on Russia can dramatically impact global supply.

When the price gap between platinum and palladium gets too wide, automakers can substitute one for the other (with some technical adjustments).

This created a fascinating dynamic in 2023, when platinum replaced 615,000 ounces of palladium in catalytic converters, leveraging a $900/oz price discount.

The transition to electric vehicles threatens traditional PGM demand, as battery EVs don’t need catalytic converters.

However, hydrogen fuel cell vehicles use significant platinum (0.5-0.6 oz per vehicle), potentially creating new demand if that technology scales up.

With all these complex, interacting factors, it’s not likely that you or I could consistently out-predict professional metals analysts, central bank strategists, and hedge fund researchers who do this full-time.

The precious metals market is a forward-expectations pricing machine. It’s constantly incorporating new information and adjusting prices based on what participants expect to happen.

Consider this: When the Fed signals a potential rate cut, gold doesn’t wait until the cut actually happens. It jumps immediately as traders incorporate this new information into their expectations.

As a solo trader, you’re very unlikely to have information the market doesn’t already know, or analytical capabilities that surpass the professionals.

I learned this lesson the hard way with my gold miners debacle. Despite having a reasonable macro thesis, I failed to appreciate that:

1. The market had already priced in much of the inflation risk
2. I was overconfident in my ability to understand the technical supply-demand dynamics
3. My timing was off, even if the long-term direction was correct

So if you can’t out-predict the market on macro factors, where’s your edge?

It’s in understanding and exploiting structural imbalances. Places where natural buyers and sellers create supply-and-demand patterns that recur predictably.

Here are some specific patterns worth exploring:

Gold jewelry demand follows predictable seasonal patterns, especially in major consuming countries like India and China.

Indian wedding season (October-December) and festival demand create recurring buying patterns. Chinese New Year similarly drives reliable demand in January/February.

These patterns can create tradable opportunities, not because they’re unknown (everyone knows Indian wedding season drives gold demand), but because the physical metal flows create structural pressures in futures markets.

The relationship between spot gold prices and futures contracts occasionally gets distorted by physical market constraints.

When these distortions happen, EFP transactions – where traders exchange futures positions for physical metal – can create opportunities for those with access to both markets.

During the COVID disruptions in 2020, the spread between COMEX futures and London spot gold blew out to over $70/oz, creating huge opportunities for arbitrageurs. Something similar happened in February 2025 on tariff fears.

The monthly expiration of options on precious metals futures creates predictable patterns of hedging activity by market makers.

By tracking open interest in key strike prices, you can sometimes anticipate price “magnets” or “repellent zones” around expiration dates. Realistically, this is not likely to give you much edge as a solo trader, though it’s an interesting effect.

When traders roll positions from one futures contract to the next, the mechanics of this process can create predictable price patterns.

This is especially true in silver, where the physical supply chain is tighter and the futures market is less liquid than gold.