How Headlines Affect Precious Metal Pricing
Humans want security. From the moment early man chose one cave over another because he thought it would keep his family group safer, humans have sought to minimize risk. Nowadays, that drive is generally expressed as the pursuit of financial security. You may have noticed that the price of Gold, Silver and other Precious Metals responds to every twitch of the political climate, every hint of economic turbulence, every headline in the major papers. That is because contemporary investors look to Precious Metals for security. When the stock market goes bearish or inflation creeps upward, people begin to feel financial panic even before anything goes wrong. Since investors look to Gold and Silver for comforting stability, every headline or political hiccup affects the general desire for Precious Metals as security against upheaval.
Factors that Affecting Precious Metal Prices
If you follow U.S. presidential elections, you may have noticed how a candidate’s being up in the polls causes Precious Metal prices to surge or dip. Each candidate’s potential policies have their own effect on the market, so it rises and falls accordingly. Precious Metal prices depend on several factors and during election years, these factors are simply magnified by the personality and reputation of the candidates. The price of Gold, for example, is affected by:
- The global economy
- Interest rates
Inflation Drives Up Prices, Not Values
Inflation frequently affects the prices of Precious Metals. Most simply, inflation means higher prices and, if the American people are lucky, a commensurate rise in wages resulting in the “inflation” of our currency. When general prices rise and people earn more money, the price of Precious Metals rises right along with other consumer goods. It’s important to note that the value of Gold and other Precious Metals is not affected. Value and price are not the same thing. When our currency is weaker, an ounce of Gold or Silver costs more.
The Global Economy in the News
Each country’s currency influences the currencies of all the countries that trade with it. If, for example, China’s currency is weak, it means that goods produced in China will be cheaper for international companies to obtain, while China and businesses quartered there will have to pay more of their devalued currency for the same goods. A situation like this can lead American consumers to favor Chinese goods when shopping, because they are cheaper. American-made goods suffer from lack of demand. Manufacturers and other companies in the supply line may have to reduce workforce, reduce production and raise prices in order to stay afloat. This is how global economy can cause inflation in the U.S. and cause the price of Precious Metals to climb. Moreover, all of these developments are in the news and we know what is happening even before we can feel its effects. We know when a foreign currency is tanking well before our wallets are actually affected. This is how headlines influence Precious Metal prices.
You may remember in March 2015 when Gold prices dipped to $1,142 per ounce. Based on news headlines at the time, investors believed the Federal Reserve may increase interest rates. Low interest rates are good for Gold dealers, as when bonds won’t perform people prefer to put their money into Gold and other Precious Metals. High interest rates make bonds and other fixed-income investments very attractive. Frankly, they pay out well when interest is high. Demand for Gold and Silver is low when interest rates are high, causing Precious Metal prices to drop. Smart investors want assets that increase their wealth and will buy wherever the greatest potential lies. They know where the money will be by following the news.
The Relationship of these Factors
Since each of these political and economic factors, which can turn on the proverbial dime, are constantly reported in the news, it can be hard to determine which upheavals are a real threat to the Gold market and which will be corrected shortly. So, while headlines can affect Gold prices, following them too religiously may make it impossible to determine when you might buy Gold to the greatest personal advantage. A savvy Precious Metals investor watches current events but also makes regular, incremental investments in Gold and other Precious Metals, building a diversified portfolio over time. Diversifying your investments and making Precious Metals part of your retirement plan will help your wealth grow, steadily and securely.