How Do Precious Metals Prices Fluctuate?

When people think of reasons to invest in precious metals, it's usually to hedge their assets. The rationale is that the stock market often fluctuates, and so precious metals seem like a more stable investment. 

Overall, this claim holds true. Precious metals are more reliable for hedging assets, and in the long run, they don't lose value. However, in the short term, precious metals prices can change.

If you've ever experienced precious metal price fluctuations, you may have some questions. What facts affect precious metal pricing? Do these changes mean that precious metals aren't a secure investment?

If you've wondered about these things, keep reading! We'll explain what factors impact the precious metals market in this guide. Let's jump right in, shall we?

Supply and Demand's Effect on Precious Metals Prices

When you see smaller-scale variations in precious metals prices, there's often a simple reason for this: supply and demand. Like many other markets and products, precious metals find value in this economic principle. 

Experts agree that there is much less gold than demand for the metal. As a result, gold often retains value. 

When demand increases and exceeds the supply, prices continue to rise. For example, when COVID-19 first broke out, many people wanted to invest in precious metals to hedge their assets. This upsurge brought gold to record high prices, according to NPR.

However, the inverse is also true. In times when there is more supply than demand, precious metals prices drop.

You may wonder if these fluctuations make gold and other precious metals a riskier investment. After all, gold's main selling point is its stability. If precious metals are less stable than people think, are they worth investing in?

The answer remains yes. Although gold prices may fluctuate in the short term, precious metals always enjoy a long-term value that sees little change. 

So, investors can still invest in precious metals and enjoy peace of mind. These assets remain valuable across the world, and they're easy to liquefy. 

Large Scale Fluctuation in Price of Precious Metals

Sometimes, the precious metals market sees significant fluctuations in prices. Typically, this occurs as a result of central bank activity.

For decades, central banks were the largest sellers of precious metals. However, since 2009, there's been a shift in the market. Central banks have instead become the largest buyers of precious metals.

In particular, there are two governments purchasing high quantities of precious metals. These are the governments of China and India. 

In 2014, India held 7.6% in gold reserves. In the third quarter of 2021, the country traded 743.83 metric tons of gold. This figure was up from 703.71 metric tons earlier that year. 

Many economic experts believe that India aims to rebalance and diversify its assets. As a result, they seem to move away from currency-based assets in favor of gold. This precious metal offers a steady reserve value with little risk in cases of economic downturns. 

The Chinese market has also grown steadily, increasing annually for the past 15 years. In 2020, the Chinese market traded 95,500 tons of gold in 2020. This figure accounted for roughly 13%-14% of the transactions in the world market. 

China and India aren't the only heavy hitters in the precious metals market. Other leaders in this sphere include the Netherlands and Japan. 

However, we should mention that the US continues to hold the majority of gold resources in the world. As things stand, this is unlikely to change. 

What does all of this mean for the precious metals market? In short, it means that the actions of central banks can cause precious metals prices to fluctuate. Central banks play an outsized role in determining supply and demand.

Inflation and the Debasement of Currency

Another critical factor in determining the price of precious metals is the state of a nation's currency. In more stable economic situations, people are more willing to take risks.

As a result, investors often allocate their funds towards things like the stock market or cryptocurrency. In short, they spend their efforts trying to increase their wealth instead of protecting existing assets. 

In times of uncertainty, the mindset changes. As we noted earlier regarding the emergence of COVID, people are more likely to want gold when they worry their assets may lose value. 

This rule applies to any situation when a currency begins to lose value. For example, in the recession of 2008, the US dollar saw a significant loss in value. The current inflation problem in 2021 has led to a similar issue.

In times like this, gold prices tend to rise. The demand for gold becomes high, allowing gold to reach record levels in value. 

Expert investors often agree that gold and precious metals are the best options in such times. When the dollar seems worthless, precious metals retain value in the long term. 

Those who already have significant stores of gold can also profit from these times. When gold prices rise, your own gold becomes more highly valued. 

As a result, you can sell your gold for sizeable amounts of money. This approach is similar to the "buy low, sell high" strategy used by the stock market. 

However, please note that you shouldn't build your precious metals portfolio on this strategy. It's much more difficult to predict when gold prices will increase. Although you can use gold to generate wealth, its primary function is hedging against inflation.

Consider Precious Metals Investing

As you can see, several factors can cause precious metals prices to fluctuate. Sometimes, you may find that you can profit by selling your gold to buyers. 

If you're wondering who to sell your precious metals to, consider giving us a call! We accept precious metals as a part of our automotive recycling initiative. Once we receive the metals, we grade them and determine how much we owe you.

If that sounds appealing, don't hesitate! Contact us today and schedule an appointment.