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The Importance of Watching Global Markets: How the Market Affects Precious Metal Prices

Investing in precious metals has always been seen as a safe bet. Generally speaking, that’s true,  but make no mistake — the global market impacts the price of gold, silver, and other precious metals in unique ways.   

The fact that some precious metals (particularly silver and palladium) have crucial industrial applications in important sectors is one reason, while the finite nature of precious metals is another. In addition, the status of gold and other precious metals as safe-haven assets has an interesting impact on their prices during times of crisis and uncertainty.   

How Does the Market Generally Impact The Price of Precious Metals?  

The global market can influence the price of precious metals in a range of ways. Not all of them are easily predictable, and each precious metal is affected differently.   

Let’s take a quick look at the market factors generally related to ups and downs in the prices of precious metals before seeing how this has played out in recent times.   

  • 1. The general state of the economy has a massive effect on the precious metals market. That’s especially true for gold, the traditional safe-haven asset. Uncertain times lead to an upswing in demand, causing prices to rise. In contrast, prosperous times frequently soften the demand for gold, thereby lowering its prices (and creating opportunities for first-time investors). 
  • 2. Supply and demand also play a key role, especially when it comes to precious metals with critical industrial applications (think silver, platinum, and palladium). When demand exceeds supply, prices rise. 
  • 3. The value of major currencies, especially the US dollar, is another important indicator to watch. Because the price of precious metals is largely tied to the dollar, precious metals become available at a lower rate when its value drops. As the dollar strengthens, prices often go up again. 
  • 4. High inflation rates can drive precious metal prices up as investors seek to hedge against inflation. The reverse is true when inflation is low. These points are also correlated with interest rates. 
  • 5. Central Bank policies (including investing in precious metals) influence the price of gold, silver, and other precious metals, too.

We can look at how the World Bank viewed trends in precious metal prices in the first two quarters of 2022 to illustrate these ideas.   

Gold prices were relatively stable, despite rising interest rates and a strong dollar. Central Banks buying gold drove prices up, while decreased consumer interest (including in gold jewelry) had the opposite effect.   

Silver, which has important industrial applications (including in electronics and healthcare), dropped in price as demand plummeted, which was likely related to supply chain issues.   

Platinum and palladium prices were affected in different ways. Platinum prices were volatile, and experienced a drop, as autocatalyst demand went down, while the price of palladium was particularly affected by the conflict in Ukraine.   

Meanwhile, the World Bank predicted that the price of precious metals would rise again because of increased inflation and a tenuous geopolitical situation — and it was right.   

What Should Investors Do to Watch the Market?  

People who have invested in precious metals, or are interested in doing so, can do a lot besides keeping track of trends in the value of precious metals.   

Following reputable news sources is key. That includes major news outlets, such as the Financial Times, but also analysis provided by experts in the precious metals market. This helps you understand not just what’s going on at the moment, but also what’s likely to be next.   

Monitoring market reports and keeping an eye on key factors like GDP growth, interest rates, inflation rates, Central Bank policies, and employment rates can also give you some useful pointers. Some individuals who invest in gold and precious metals might enjoy (and benefit from) joining online groups where they can discuss predictions and trends with other investors, too.   

Those who are new to investing in gold and other precious metals may, however, benefit most from consulting a financial advisor who specializes in the precious metals market. Dipping your toes into gold, silver, palladium, or platinum means investing in safe-haven assets, but this type of investment also has a learning curve. A good financial advisor will get you up to speed.