Spot Metals
Market DriversThe following factors may influence the price of metals:
Hedge against inflation
One of the most common description of gold as an investment is as a hedge against inflation. The thinking is that as the inevitable decrease in buying power affects currencies, owning gold is one way to hedge against the value of your wealth decreasing. Doing so ensures that you will receive a commensurate amount of currency for the amount of gold you own, no matter what the inflation rate is.
Alternative to the US Dollar
Gold and silver is also used as a hedge against the US dollar in the current economic environment. Thus when the reserve currency comes under pressure, investors seek out other alternatives.
A "safe-haven" investment
Another view of gold is as a "safe-haven" investment. During times of high volatility and risk, investors may move funds to gold as a way to safeguard against uncertainty.
Understanding economic and political factors
Indicators that impact inflation such as the Consumer and Producer price indices, interest rate announcements, and treasury auctions play a large part in determining the inflation rate, and therefore have an impact on gold prices. Macroeconomic indicators, such as the Unemployment rate and Gross Domestic Product (GDP) also shed light on the strength of an economy, and may lead investors to lean towards or away from moving money into gold. While the current economic environment has seen some of the traditional strong negative correlations between precious metals and the US dollar weaken, we would keep in mind that they can resurface at any time.
Political events can also have a significant impact on the price of gold. If uncertainty arises over conflict in the Middle East, this might have an effect on the perceived safety of an investment in a country's bonds or currency, and to hedge against this risk, investors might move funds into gold or cash. Oil and other commodity prices may also be affected, and the commodity relationship might have a carry-over effect into the gold markets, pulling or pushing the price of gold in the same direction as oil.
Typically the spot gold market is somewhat volatile, given the ability to enter and exit trades several times a minute. For this reason, prices may be more susceptible to short-term fluctuations that do not necessarily follow a long-term trend.
The following factors may influence the price of metals:
Hedge against inflation
One of the most common description of gold as an investment is as a hedge against inflation. The thinking is that as the inevitable decrease in buying power affects currencies, owning gold is one way to hedge against the value of your wealth decreasing. Doing so ensures that you will receive a commensurate amount of currency for the amount of gold you own, no matter what the inflation rate is.
Alternative to the US Dollar
Gold and silver is also used as a hedge against the US dollar in the current economic environment. Thus when the reserve currency comes under pressure, investors seek out other alternatives.
A "safe-haven" investment
Another view of gold is as a "safe-haven" investment. During times of high volatility and risk, investors may move funds to gold as a way to safeguard against uncertainty.
Understanding economic and political factors
Indicators that impact inflation such as the Consumer and Producer price indices, interest rate announcements, and treasury auctions play a large part in determining the inflation rate, and therefore have an impact on gold prices. Macroeconomic indicators, such as the Unemployment rate and Gross Domestic Product (GDP) also shed light on the strength of an economy, and may lead investors to lean towards or away from moving money into gold. While the current economic environment has seen some of the traditional strong negative correlations between precious metals and the US dollar weaken, we would keep in mind that they can resurface at any time.
Political events can also have a significant impact on the price of gold. If uncertainty arises over conflict in the Middle East, this might have an effect on the perceived safety of an investment in a country's bonds or currency, and to hedge against this risk, investors might move funds into gold or cash. Oil and other commodity prices may also be affected, and the commodity relationship might have a carry-over effect into the gold markets, pulling or pushing the price of gold in the same direction as oil.
Typically the spot gold market is somewhat volatile, given the ability to enter and exit trades several times a minute. For this reason, prices may be more susceptible to short-term fluctuations that do not necessarily follow a long-term trend.