Precious metals such as gold and silver have been used as currencies for millennia. It’s only been since the advent of fiat currencies that gold and silver have not held their rightful place as the prime global currencies.
But, their worth has only soared in the recent past. Nowadays, people buy these metals to invest and personal wealth.
Yet, even though the popularity of these pieces has skyrocketed in recent years, it’s still unclear why precious metal prices fluctuate. It’s essential to know why before you commit to such a huge investment.
So, why do precious metal prices fluctuate? Keep reading to find out!
Supply and Demand
Precious metals like gold and silver are mainly guided by the laws of supply and demand. When demand for precious metals increase, so does the prices. This is because there is more competition for a limited supply of precious metals.
When there is an oversupply of precious metals compared to demand, it can lead to prices dropping. This is also true for conditions in the global economy. When there is global demand, precious metal prices tend to be strong.
Monetary Policies and Interest Rates
When central banks increase interest rates, it has a direct negative effect on the prices of metals. When interest rates go up, it affects the liquidity of these metals and impacts demand, resulting in a drop in prices.
Conversely, when rates are low, investors search for an alternative low-risk place to invest, driving demand and prices up. Precious metal purchases are also impacted by inflation. When inflation rises, the value of money decreases, and investors flock to metals as a store of value. Precious metal prices also fluctuate in response to news and events.
For example, wars or threats of war tend to drive up demand for precious metals. This is because they are seen as a safe-haven investment. Their prices tend to maintain their value even during volatile market conditions.
Trade tensions and sanctions can also cause a rise in metal prices. Those affected countries may rush to acquire metals to maintain their economic stability.
On the other hand, relative peace can cause a price drop. It is due to decreasing demand in times of stability.
The trading activity of investors and speculators can affect the gold price. These fundamental influences can be anything from the global supply and demand balance. You can shop for silver coins and gold coins for trading precious metals.
Technical analysis gauges market behavior. It can use to determine price trends and support and resistance levels. This analysis can also be used to detect price reversals. It allows traders to get in and out of the market at the right time for investing in precious metals.
A Guide on Reasons Why Precious Metal Prices Fluctuate
Precious metal prices can fluctuate for many different reasons. This guide can help precious metal investors expect price movements.
By reading this guide, you have gained knowledge of the various factors affecting precious metal prices. To become a successful precious metal investor, start buying and selling now.
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