Smart investors take great care in choosing their investments. They turn to the predictions of experts but also look to historical prices and trends for their potential purchase. For those looking into precious metals investments, the trends may seem confusing at best. Precious metals do not behave in the same way on the market that other commodities do. However, their inherent scarcity would generally dictate that they are a worthwhile investment. There are factors that affect the prices of precious metals, so there is a way for potential investors to know what they are getting into.
Changes in Price Factors
Over the years, a lot of effort has been put into understanding exactly how gold prices work. The other types of precious metals investments have not had quite the same amount of analysis devoted to them, but they tend to respond in a similar manner to market forces as gold does. The reason that economists have tried so hard to understand the price of gold is that much currency, including, for a time, the U.S. dollar, was backed directly by gold. While this was the case, the price of gold could help provide an understanding of the entire national economy.
However, these forces are not quite the same as they have been anymore. The United States is no longer nearly as much of a global power as it used to be, and therefore does not have as much of an effect on the value of gold. Neither do changes in the value of currency, since gold and currency are no longer directly linked. These global economic shifts are changing the face of precious metals investments, but it seems to be for the better for investors.
Reading the Factors
The reason gold prices and those of other precious metals investments can be so hard to understand is that these precious metals are not exactly the same as other tradable commodities. They are not paper trade units like stocks and bonds, which provide a steady income as long as they are owned, but they are also different from other physical commodities. Unlike agricultural products, they have no immediate practical use (though they are used in industrial capacities at times, only a relatively small proportion of the metals is purchased for that purpose) and they have no seasonal fluctuations. Physical commodities can usually be priced through simple examination of price and demand, but precious metals do not move quite so simply.
For now, precious metals investments are still mainly affected by changes in the American economy, particularly currency changes and interest rates. When these fall, as they have been doing, the price of gold generally rises. This is because gold is seen as an economic stabilizer and a way to keep one’s money safe in dangerous economic times. While the rest of the market suffers as the dollar continues to become more and more devalued as compared to foreign currency, precious metals investments thrive.
There are also much fewer supply shifts in precious metals markets than there are for other commodities. There is a finite amount of these metals; they are not a renewable resource. However, they also are not really consumed. Much of their use is as currency or financial placeholders, so large amounts of these metals are simply traded around as bars and coins. The metals that do get used in industrial applications or as jewelry are either kept in those forms or painstakingly recycled and reused when the item has outlived its usefulness. However, on the rare occasions that a new deposit is discovered, it will probably happen without warning, so investors need to be able to ride out a sudden price change if necessary.