Gold and silver are some of the most popular precious metals people love to invest in. However, the price of these metals fluctuates often. Hence, investors and forex traders need to stay informed about fundamental factors that impact the gold and silver price.
The financial market respects technical and fundamental analysis both. So, you can’t deny the necessity of the essential factors. But, if you can combine the fundamental and technical analysis, there is no doubt that we will get better results in our trading.
The United States government uses its ability to print money to pay off debts. As a result, the value of the United States dollar increases in tandem with the accumulation of debt. As a result, the price of gold declines.
The United States government is one of the world’s largest purchasers of gold. The Treasury Department of the United States purchases approximately half of all gold produced each year.
In our many previous articles, we have discussed many technical indicators. Here I will explain some fundamental factors that impact the price of gold and silver. I hope this article will help you when you’re deciding whether or not to buy gold or silver.
What is the price of gold and silver?
The commodity market determines the price of gold and silver and can go up or down depending on how much is demanded and available.
While the price of precious metals fluctuates, it’s important to note that gold and silver are not stocks, bonds, or currencies. It means that gold and silver investment does not provide capital gains like other investments might.
Investors should look at market trends to get a better idea of where the prices for gold and silver will be heading in the future.
Why do gold and silver prices fluctuate?
The price of gold and silver can fluctuate for a variety of reasons. First, gold is an attractive asset to invest in because it has traditionally been considered a safe-haven investment. It means that people buy gold when they are worried about the current state of the economy, fear that the value of their government’s currency will decline, commodities demand, interest rates, physical demand, supply, etc.
Silver prices often fluctuate due to supply and demand for this metal. Although it is less expensive than gold, more silver is available. When the supply of silver increases, like during mining operations, the price goes down. Conversely, the price rises when supply decreases (like when mining operations are down).
Other factors can also impact prices, such as geopolitical tensions or global economic developments. For example, if significant economies like China and India suffered a financial crisis, demand for both metals would likely rise as people seek safe places to invest their money.
What does the future hold for gold and silver?
Many things can affect the price of gold and silver globally. For example, an international crisis or a natural disaster could lead to a spike in the prices of these metals.
It’s also important to consider how demand for these metals varies regionally. For example, gold is popular in India due to its long history with metal. So, while it may be doing well in other parts of the world, if there is a regional slump in demand for gold, this would result in a price drop.
Additionally, it’s essential to keep an eye on inflation rates because they will dictate how people perceive the value of metals like silver and gold. If inflation rates increase significantly, then your purchasing power decreases. This shows that people often value gold and silver more when there are higher inflation rates because these precious metals have been historically used as a hedge against inflation risk.
Global economic growth
One of the most influential factors in whether investors buy gold or silver is global economic growth. The more an economy grows, the higher the demand for gold and silver.
In 2008, when the United States was in a recession, people turned to investing in gold and silver for security. As a result, people were buying up 160 times more gold than before 2008. When economies are doing well, people don’t typically invest in precious metals because they’re focused on other things like stocks and real estate.
Today, many economists predict that a recession might be around the corner due to decreased consumer spending and increases in unemployment rates. People will start investing heavily in gold and silver again if this happens because it provides stability during tough economic times.
The U.S. dollar values and the U.S. fundamental reports
The relative value of gold and silver compared to the U.S. dollar is a significant influencing factor. The value of precious metals can often be impacted by the strength or weakness of the U.S. dollar, and correspondingly the strength or weakness of other currencies. For example, when the U.S. dollar becomes more robust, it becomes cheaper to buy gold and silver – and vice versa.
So, those fundamental factors are suitable for the U.S. dollar. But, at the same time, these factors weaken the gold and silver price. So, before you trade gold and silver, I suggest you follow the economic calendar daily. The U.S. intraday fundamental factors always impact the gold price directly because gold and the USD are the reserve currency.
Other commodity prices
The price of gold and silver is directly correlated to the price of other commodities. Therefore, if the prices of other commodity items rise, so will the price of gold and silver. As a result, when deciding whether or not to invest in precious metals, it’s essential to keep an eye on commodity prices.
Additionally, demand for precious metals is correlated with global commodity prices. Therefore, if global commodity prices increase, demand for precious metals will also increase.
Especially Iran doesn’t use the USD, and the U.S. and Iran have trade tension. So, usually, Iran tries to use gold or silver to sell their oil and weapons. China and the U.S. also are heading into a trade war.
That also helps the rise of the gold price. So, if another commodity’s price rises, most of the payment processes are done by gold and silver. Some countries are using cryptos nowadays. But, as cryptos don’t have instinct values, cryptos won’t make the precious metals gold and silver alternative.
Inflation is a situation in which the price of goods and services increases. This phenomenon can affect gold and silver prices, which fluctuate with global inflation, but it doesn’t have to.
If you seek an asset that will retain its value over time, gold or silver may not be for you. However, some people invest in these metals because they are liquid assets that quickly convert to cash.
Gold and silver are better investments to hedge against inflation than stocks, bonds, or any other type of investment vehicle. This is because they are liquid assets that can be converted into cash quickly if need be.
Central bank’s activities
Central banks are involved in various activities that can affect the price of gold and silver, such as buying or selling gold or issuing new currencies like quantitative easing. When central banks issue more currency, they buy less gold. That lowers the demand for gold, which impacts its price. It is essential to consider what central bank activity is happening before you invest because it could change the value of your metal.
Real interest rates
For years, interest rates have been at zero or near zero. This has put upward pressure on the value of gold and silver—the Federal Reserve, which determines how many bonds it will buy, known as quantitative easing. However, to stimulate the economy is now starting to reduce these purchases. It means that there will be less upward pressure on interest rates in the U.S.
Usually, higher interest rates are the obstacle to the higher gold price. If the interest rates are high, investors will not invest in gold or silver. In addition, storing gold and silver will not get any passive income from it. But if they keep their money in the bank or invest in currencies, they will get swaps or overnight income.
So, when the central banks raise interest rates, gold drops, and when primary doesn’t provide higher bank rates, investors invest in gold and silver for their safety. Usually, central banks cut their interest rates when they think they need to invest cash in their economy. So cutting interest rates makes loans easy.
Physical demand and supply
Gold and silver prices depend heavily on the balance between physical demand and supply. The more demand there is for the metal, the higher the price. The more supply there is for the metal, the lower the price.
Some investors believe that gold and silver prices are continuously rising because of inflation—where prices for goods and services go up over time. This causes people to buy gold and silver to protect themselves from inflation and diversify their portfolios.
However, other factors affect gold and silver prices as well. For example, central banks may decide to sell gold or silver to create liquidity in an economy. When this happens, it decreases the physical demand for those metals.
Demand also comes from jewelry manufacturers who need gold and silver to create rings, bracelets, necklaces, earrings, etc., which they then sell to consumers who want them as adornments or gift items.
Fundamental and technical analysis is essential for the gold price. If you want to be a professional trader, you can’t ignore this reality. So, try to use fundamental and technical analysis in your every trade. Especially the U.S. essential factors are the most important. Because the U.S. dollar price and gold price runs adverse.
The United States government has been actively purchasing gold. Since then, the United States government has purchased approximately $100 billion worth of gold per year. In addition, the United States military requires gold to manufacture bullets, medals, coins, and other items.
The United States Mint manufactures over 75% of the world’s bullion coins. In addition, the United States government controls the most significant percentage of mining businesses based in the United States. These firms account for approximately 70% of the entire amount of gold mined. So, gold and silvers demand will never fall as other assets fall.