What Drives Precious Metal Prices in the Market

Trading precious metals is a lucrative investment option for investors looking to diversify their portfolios. The markets have held value for precious metals for a long period thus making precious metal trading safe.

Whether you intend to buy or sell precious metal Michigan, precious metal price stability is a factor to consider before investing your money in precious metal trading. You do not want to buy precious metals worth millions today and watch your investment wither away as your precious metals’ price takes a nose-dive.  There are many factors that influence price fluctuations in the market and they have been discussed below.

Political Influence

Politics in a country plays the biggest role in its economic stability. Whether a country’s economy thrives or falls depends on the economic policies implemented by the sitting government. The price stability of precious metals is also greatly influenced by the government’s political policies and actions. Government conflicts with other governments create tension, leading to decreasing faith in the fiat currency of the nation. Consequently, investors are only left with precious metals such as gold and silver as the only stable and tangible means of storing wealth. Adverse relationships with other governments tend to slow the economic development of the country but pose ideal conditions for the spike in precious metal prices. 

Supply and Demand

The basic economic rule of demand and supply dictates that the higher the commodity’s price, the lower the quantity of the commodity demanded. On the contrary, the higher the price of a given commodity, the higher the quantity supplied. When demand for precious metals exceeds supply, the price of the precious metals will rise. The continuous increase of prices in the market attracts sellers looking to dispose of their precious metal assets and convert them into money. Once the supply of precious metals exceeds the existing demand in the market, the prices will begin to drop. The cycle repeats itself creating price fluctuations in the market. Investors wait for the prices to hit a certain mark and buy back the precious metals creating demand, pushing the prices back up, and selling them to make a profit. 

Consumer Preference and Behavior

If you closely observe the market trends, you will notice that gold prices are higher than silver prices, which are more volatile than gold prices. The market has more confidence in gold, making it a preferred wealth reserve over silver. Long-term investors buy gold due to its stability. Swing traders, on the other hand, invest in silver due to its volatility. Volatility is the traders’ money-making tool, as frequent price movements make a quick buck. 

Inflation 

Inflation in any sector involving monetary exchange is unavoidable. Profits drive prices up in any form of business activity carried out. The cost of gold today is very high compared to twenty years ago. Inflation adversely affects currency value in that, 10 dollars will buy fewer commodities today than it would ten years ago. Gold prices tend to keep up with inflation. For example, an ounce of gold selling for 20 dollars twenty years ago will sell for 200 dollars today (The figures used are not actual market prices for gold). Therefore, gold and other precious metals are used to evade inflation by holding and storing wealth, unlike paper money.

Diverse Investment Options

Technological advancements offer flexibility in investment options by increasing and making them easily accessible to everyone. Many people are turning away from precious metals and venturing into more secure, high-return investments. Bitcoin and cryptocurrency have become a trend, taking over the money markets with a wave. Bitcoin was invented to decentralize money and give the public control of their money, which is contributing significantly to the constant fall of precious metal prices.

Conclusion

Precious metals are the most trusted form of investment because they have withstood the trials of economic turmoil. Despite their falling prices and the rise of other investment options, precious metals remain the best viable investment option in the market. Conducting proper market research on trends, prices, and the factors affecting the price movement of the precious metals you consider investing in is crucial to ensuring that you get decent returns on the investments.