Appraisal at Eye’s Glance: 4 crucial factors that determine the prices of precious metals
Precious metals from silver to gold are a critical aspect of our economy. But just like anything that impacts the economy, the worth and value of precious metals fluctuate over time depending on a plethora of variables. Whether one is looking to sell or purchase precious metals or invest in them, understanding these variables is critical.
The following factors are four things that can determine the prices of precious metals:
- Supply and demand
Supply and demand are perhaps the most basic factors that determine the price and value of any product or service. These two economic terms play hand in hand. Supply is the amount of inventory available while demand is how large the desire or need is for consumers. Cultural significance, celebrities, research, and trends can impact the current consumer demand.
As one could probably imagine, if the supply for the precious metal is low (shortage), but the demand for the metal is high, its price would be high. However, if the demand was low, but the supply was hefty (surplus), it wouldn’t make logical sense to have a high price point; there wouldn’t be enough value for the product to be worth a higher cost.
- The value of the U.S. dollar
According to the Foundation for Economic Education, the value of the U.S. dollar – or any type of currency for that matter – has to do with the purchasing power of money, which is partially determined by the demand for money. In fact, the value of the U.S. dollar can have an impact on the prices of precious metals.
If the value of a dollar changes, the value of precious metals must also change to reflect the current metal’s value in correspondence with its new currency value. For example, if the value of the dollar goes down (inflation), the price of precious metals will go up.
- Interest rates
While higher interest rates can hurt the stock market, higher interest rates may actually help put precious metals in higher demand. In turn of higher demand, the price of the associated metals will increase to help keep the supply in check.
Higher interest rates help make precious metals like gold more popular because investors tend to look for alternatives as the markets decline. What investors often turn to during these times are precious metals. However, when stocks and bonds are doing well, investors may turn away from precious metals.
- Economic stability
There are many factors of economic stability: a low rate of inflation, minor changes in growth output, stable employment rates, and the like. As you might have guessed, these very factors can impact the prices of precious metals. In a society with stable income and general economic security, the demand for precious metals can be higher as more can afford such.
But before one can get an idea of how much precious metal is worth based on the latter factors, it’s first important that the authenticity of the metal is verified. You can learn more about precious metal testing from Thermo Fisher.
While many have an idea of the basics of how the economy works, it’s important that if one plans on buying, selling, or investing in a precious metal that they are aware of how the market fluctuates. Supply and demand, the value of the U.S. dollar, interest rates, and economic stability are all things that can change the worth and price of precious metals.