Most people think of gold and silver for investment purposes. These two valuable metals have been used as currencies for centuries, and they continue to be popular investment choices even today. However, to make a good investment decision, it is important to take the advice of an expert who carries years of experience in investment in precious metals.
If you want to make investments, you must know how to check the prices of gold and silver bullion and calculate the premium you will pay over the spot price. Here is the information on things that affect the price of silver and gold bullion.
The Global Economy
People invest in riskier assets like stocks and bonds when the economy is doing well. It results in less demand for gold and silver, causing the prices to fall. However, investors consider gold and silver as an asset when the economic uncertainty looms. Accordingly, the demand drives up the costs of these metals.
The central banks hold large reserves of gold and silver. They can choose to sell these off during periods of economic uncertainty to help stabilize the markets. For example, the United States had the most famous gold reserve, more than 8,000 metric tons of gold, in December 2020.
The Stock Market
Investors are likely to put money into stocks and other assets that offer growth potential when the stock market is doing well. There is less demand for safe-haven assets like gold and silver, leading to lower prices. On the other hand, when the stock market is struggling, investors tend to pull their money out of stocks and look for assets that hold their value.
The U.S. Dollar
The U.S. dollar is the most critical factor affecting the price of gold bullion because it is used as a pricing mechanism in the market. For example, when the dollar weakens, gold becomes cheaper for foreign investors, and this increased demand can push prices higher. Conversely, a strong dollar makes gold more expensive for buyers using other currencies, leading to lower demand and prices.
Technological advancements have allowed for an efficient market with more accurate pricing. The COMEX and other exchanges have made it possible to trade gold and silver bullion electronically, which has increased competition and helped to narrow the bid/ask spread.
Investment demand can be volatile and is often driven by concerns about geopolitical events or the global economy’s condition. Geopolitical issues that can affect the prices are:
- Tensions between countries
Economic issues may include:
- Inflation levels and expectations
- Interest rates and monetary policy settings around the world
- Employment levels
Gold and silver prices are set by the interactions of buyers and sellers in the marketplace. To calculate the premium of gold or silver bullion, you need to know the spot price and the melt value. The spot price is the latest market price of an ounce of gold or silver. The melt value is the intrinsic value of an ounce of gold or silver based on the market price of gold or silver. The premium is the difference between the spot price and the melt value.