More and more investors are shifting from traditional investment options to precious metal investments such as gold and silver. The increasingly high demand for precious metal investments is mainly because gold and silver are liquid investments and are excellent stores of value. However, even though these precious metals have improved steadily in value over the years, prospective investors need to take time to understand all the factors that affect these investments such as the constant price fluctuations.
By identifying the factors that cause silver and gold price fluctuations, investors can take the necessary measures to ensure that they maximize their investment gains and minimize losses. Overall, the main factors that cause the incessant rise and fall of silver prices in the US include:
Value of the Dollar
As is the case with other precious metals, the prices of gold and silver depend, largely, on the current value of the dollar. When the US Dollar Index decreases, the prices of precious metals rise. This is because; when the value of the dollar is low, it takes more dollars to buy unchanging volumes of silver or gold since, unlike paper money, physical precious metal investments do not decrease in value. Additionally, because gold and silver are a popular safe haven for investors when the dollar decreases in value, the increased demand for these investments when the value of the dollar decreases also affects prices.
Traditional/conventional investment options such as stocks, shares and bonds are great assets to hold when interest rates are high. However, interest rates are prone to regular dips. When interest rates dip, the investors who own assets such as stocks, shares and bonds do not get good returns. Most of these investors turn to precious metal investments such as gold and silver since these precious metals continue to appreciate even when interest rates are low. The rise in demand for silver and gold generally causes significant price fluctuations. Conversely, when interest rates rise, investors tend to keep money on deposit instead of investing in gold and silver since precious metals are non interest-bearing investments. This causes sudden dips in the price of silver and gold.
Anticipation of Inflation
In an inflammatory market, equity-based investment portfolios face the risk of severe devaluation. When there is expectation of inflation in the market, the demand for investment options that are great stores of value such as gold and silver tends to increase and this affects prices. This is because; investors know that they can maintain their purchasing power and insulate themselves against major losses if they use gold and silver as hedges against inflation.
Admittedly, most investors perceive gold and silver investments as security assets that they can add to their equity-based investment portfolio in order to guard against factors such as inflation and devaluation of the dollar. However, in the recent past, more investors are investing in silver and gold purely for the profit-making potential of these precious metals. Such investors study the prices of gold and silver on a per minute basis daily and move large amounts of funds to either buy or sell depending on the state of the market. In order to maximize their gains, investors who invest in gold and silver solely for profit-taking purposes liquidate their physical gold and silver frequently once they make a profit or if the price of these investments drops suddenly and move to other markets. The mass liquidation of gold and silver by profit-taking investors cause prices to fluctuate sharply from one trading day to another.
State of the Global Precious Metal Market
Before investing in gold and silver, it is important for prospective investors to be aware of the fact that the physical silver and gold markets are global. This means that the silver and gold price fluctuations do not revolve only around factors in the US economy such as inflation or currency devaluation. Investors should keep a keen watch on the global precious metal markets since factors such as hoarding of physical gold and silver in markets such as China, India and Europe due to speculation by investors around the globe have a direct impact on gold and silver prices in the US. Additionally, factors such as global economic recessions also affect precious metal prices because recessions lower jewelry consumption among consumers. As the global demand for jewelry decreases, the price of gold and silver also decreases.
It is also wise to consider rolling over your individual retirement account into a silver or a gold ira. Just investing a small portion of your retirement into a gold ira, you can hedge against economic failure.
All in all, the prices of silver and gold have been very volatile historically. In order to make good buying and selling decisions, investors who own gold and silver investments need to familiarize themselves with all the factors that influence retail and wholesale prices of these precious metals. By understanding these factors, investors can make profitable investment decisions.
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