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How Does Supply and Demand Impact Purchasing Precious Metals?

Like all commodities, Precious Metals are influenced by supply and demand. Economics 101 tells us that the more in demand or rarer something is, the more it will cost.

Consider the graph below. The X-axis represents quantity. The Y-axis represents price. When demand or supply changes, it is referred to as a movement and is represented by the sloping curves. The intersection where demand meets supply determines price.


Supply and Demand Chart

If there is a decrease in demand, the slope will move left and meet supply at a different, lower-priced intersection. Similarly, if there is an increase in supply, the slope will shift right at a different, lower-priced intersection.

FACTORS THAT AFFECT THE SUPPLY OF PRECIOUS METALS

As limited, natural resources, Precious Metals like Gold, Silver, Platinum and Palladium are the epitome of rare. For example, only about 2,500 metric tons of Gold are produced each year.

What can increase the supply and decrease the cost:

  • Improvements in mining technology
  • New discoveries

What can decrease the supply and increase the cost:

  • The closing of mines
  • Government reserves buy more than they sell
  • Increased demand

APMEX recommends discussing the pros and cons of investing with a financial advisor or professional.

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