Factors Affecting Gold And Silver Prices

Posted by admin on October 14th, 2014 — Posted in Investing, Money News, Precious Metals

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Silver price and gold price have continually fluctuated over the years. However, in recent years, the trend has significantly gone up. The prices of these precious metals depend on a number of factors including the current global economic climate, availability of metals and the value of the dollar. Below is a discussion of these factors and how they influence the prices of these metals.

Availability

The world has a limited supply of these precious metals in their mined and unmined forms. The quantities of already mined and available for sale, precious metals decrease by day as major economies such as China and India continue their massive acquisition of these metals. China is acquiring tonnes and tonnes of gold while India is acquiring silver, after the ban that limited gold importation. Either way, the quantities of these metals have greatly decreased and will continue to do so as these economies hoard their supplies, making the prices of the limited available supplies of these metals soar even higher.

gold and silver coins

Depleting resources

Gold and silver, just as other naturally occurring metals and minerals, deplete with every mining activity. This translates to decreased supplies of the available metals around the world as companies continue mining. The fact that the metals occur naturally mean that the world has fixed deposits of these metals, and no more than is available can flood the markets; hence, minimal chances of inflation. Without the risk of inflation, these metals retain their purchasing power longer than the dollar and real estates, which can be increased at will.

Reduced exploration and mining activity

The debt ceiling in the U.S and the rest of the world has led governments to direct available funds to pay the debts. This means that the governments cut spending of the funds on major and minor services and products, including funding of the exploring and mining companies. With limited funding from the government and other stakeholders, who fear that their stocks might become worthless (thanks to the weakening dollar value), exploration and mining activities are, slowly, grinding to a halt. This means there will be even fewer supply of these metals in the future than at present. Extremely low availability of these metals will make the available quantities’ prices shoot even higher.

pie chart

High demand in industrial uses

Most huge industries utilize gold, silver and other precious metals to make solid parts of some of the products they make. The recent boom in the demand for photovoltaics has led to an increased purchase of these metals to satisfy the market. These metals take priority in making these products due to their durability, which makes the products last longer than products made of cheap, non-durable materials. The high demand of these metals has, thus, increased their value. Again, the increases demand reduces the quantities of these precious metals available for purchase by other people; low supply and rising demands equal high prices.

Dollar value

The U.S has not been spared from the crippling debt that has affected other global economies. Without sufficient money in the system to pay the debts, the government has resulted to cutting spending and having the Federal Reserve mint extra currency. To enable citizens access to services and products, the government has, in several occasions, employed QE (Quantitative Easing) to increase the amount of currencies in circulation. During QE, the government buys collaterals and other assets, in effect releasing its money to banks and other financial institutions. Financial institutions make the money available to citizens through lenient lending; minimal qualifications, low interest rates and longer repayment duration.

gold coins and money

QE and dollar minting result in too much money in circulation. Whereas this might seem like a good thing, too much money and the same quantities of goods and services reduce the purchasing power of the dollar so that more money will be required to purchase products and services. The loss of the dollar value makes people lose their trust in its investment, and as they flock towards silver and gold investment, they create a demand for these metals; the demand for low supply increases their prices. Again, as the dollar loses value and consumer goods seem to get more expensive, so will these metals’ prices; except the metals will not depreciate or lose their value as other things.

Conclusion

Silver and gold have become the world’s best investments compared to other precious metals, currencies and real estates. It is not hard to see why; these metals have high industrial demand, durability that assets and money lack and fast decreasing quantities. Their prices have an upward projection over the coming years as economies continue dwindling and currencies inflate.