Since ancient times, precious metals (more specifically gold) have been highly valued by humans. Monetary wealth has been closely associated with these metals. These metals have a tendency to hold their value for long periods of time on the financial markets and accordingly provide a continuous safe haven for those who want to trade in commodities. Gold and Solver in particular have the highest correlation with the Dollar and the Euro - two of the world’s leading currencies.
Some factors affecting the price of precious metals are :
- Low transaction cost - Being dollar-denominated, the price of precious metals is related inversely to the value of the US Dollar.
- Supply & Demand - With an increase in demand, the prices of precious metals tend to rise. Alternatively, with a decrease in demand, there is a fall in the prices. This trend of price rise and fall is generally observable in the long term while the short term prices remain more or less stable.
- Industrial Demand - Precious metals such as Gold, Silver, Palladium, and Platinum often find heavy use in industries ranging from electronics to manufacturing. Rising demand for electronics and jewellery products can make the prices for these metals go up.
- Inflation - Inflation directly impacts the price of precious metals in a proportionate manner. Rising inflation causes a rise in the price of precious metals.