Whether you’re getting into investing in bullion or you’re a jewellery collector thinking about selling some pieces that you no longer wear, you need to know the finances of bullion. Precious metals like gold and silver are traded on global commodity markets, just like oil, natural gas, aluminum, coffee, sugar, and livestock. However, the economics of precious metals are also unique compared to other physical commodities because of the role that they play as financial instruments.
It can all be a lot to manage if all you’re doing is selling some gold or silver jewellery but learning what drives the price of bullion will help you get more for your necklaces, rings, bracelets, watches, and more.
Jewellery buyers like Muzeum already make the process of selling your jewellery simple. When you bring in your jewellery, they use X-ray technology to confirm the precious metal content of each piece individually, and offer a price based on the current markets.
But how do those markets work? Should you sell your gold now, or could it be worth more if you wait a few months? Here’s a quick look at what drives the price of gold and silver.
The Top 3 Factors Affecting the Price of Gold
The economy is a complex system, and there is never one answer to why the price of something should go up or down. That said, these are the three main factors that affect the price of gold.
#1 Interest Rates
Low interest rates bring down the profits that can be earned on the bond market. Bonds traditionally compete with gold for investors seeking safe havens. When central banks lower interest rates (especially the Federal Reserve), borrowing becomes cheaper, and investors start to shift capital to other assets that will generate better returns.
#2 Inflation
The role of inflation on gold is a complicated one. Investors have traditionally relied on gold as an inflation hedge, meaning that they trust gold to retain its value even when the purchasing power of their cash is declining rapidly. Gold tends to do well as an inflation hedge over decades rather than months, but high inflation can push gold prices higher.
#3 Geopolitical Uncertainty
In many emerging markets, wealthy individuals rely on gold as a store of their wealth due to the risks posed by geopolitical uncertainty, including hyperinflation and regime change. Even in stable, developed nations, bad news tends to negatively impact markets.
The Top 2 Factors Affecting the Price of Silver
Silver operates a bit differently. It is less speculative and acts more like a traditional commodity, meaning the two greatest factors impacting price are supply and demand.
#1 New Supply
Mining silver isn’t easy. New deposits need to be researched and located, and large mining operations have to be developed in order to extract new metals from the ground. Supply can take a long time to unlock, and rising prices are not always solved quickly.
#2 Industrial Demand
Silver is used in a variety of industries. Jewellery consumes a significant amount of the metal, but it is also consumed in electronics, automotive industries, aerospace, medicine, and more.
Keep your eye on gold and silver markets before you decide to sell, and you can get more from your investments.
