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Factors that Move the Prices of Precious Metals

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Precious metals consist of a small group of treasured commodities that include gold, platinum, palladium, and silver.

Having been used as a means of currency in the past, they’re now mainly used for investment purposes and industrial uses in the modern era.

Gold and silver have a higher demand than other precious metals because they’re considered coinage metals, meaning they are used as jewelry, in art, for trading, etc.

These precious metals have been high in demand historically because of their uniqueness and inadequacy. The demand for these precious metals has always been constant, although the prices frequently fluctuate.

Let’s talk about the most common factors that move the prices of these precious metals.

Supply and Demand

This might seem to be one of the basic factors when it comes to influencing the prices of precious metals, but it surely is one of the most important ones.

Precious metals have always played an important role in shaping economies. The extreme volatility is due to the constant demand for these metals, but the supply shortage makes the shift in prices.

Other factors can disturb the smooth flow of supply, such as economic crisis, political instability, weather conditions, and many more.

Due to these factors, the prices rise since there’s a downward shift in the supply.

The Influence of U.S. Dollar

Inflation is when prices increase, and when inflation arises, the price of gold increases.

There is an inverse relationship between gold and the US dollar price because the metal is dollar-denominated globally. A strong US dollar lowers the price of gold and keeps it more stable around the world.

Meanwhile, a weak US dollar tends to increase gold prices by increasing demand for the metal since a weaker US dollar increases gold affordability. Therefore, gold is considered an inflationary hedge.

Central Banks

Central banks tend to store precious metals since they’re the most valuable assets during economic crises and are globally accepted and recognized.

These precious metals can easily be liquefied, which makes them so valueable. Central banks trade, exchange, and loan other central banks these metals according to their need or agreements.

Whenever the central bank diversifies their monetary reserves, which is the paper currency, the prices are most likely to rise into precious metals, especially gold.

Most central banks have reserves of gold since it is the most acceptable metal across the globe.

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