Gold and silver: what drives prices
If for ordinary people, gold and silver are the metals that make up all kinds of everyday jewelry, then for the entrepreneurial part of the population this is a great way to invest. The purpose of investing is not in the process itself, but in further profit from the sale of existing assets, therefore, it is necessary to closely monitor the precious metals market, where various factors influence the pricing policy.
Experts and analysts divide such factors into 2 categories: universal and unique. The former operate according to the laws of all other markets and focus on ordinary supply and demand. Moreover, not only the current situation, but also the historical component is taken into account - there is a standard price comparison. The second factor has a periodic basis, which depends on the political situation in a particular country, the collapse of the financial sector or military operations.
If we break down the 2 categories in more detail, then we can give an example of seasonal demand for gold and silver. In India, every year in the autumn there is a festival of lights - Diwali. In this short-term period, demand for gold rises, when most residents try to buy gold jewelry at low prices. In just a few days, approximately one fifth of the total annual sales turnover in Asia is generated, which significantly affects the cost of the metal.
Most silver is used for industrial purposes, and only a small part of it goes on free sale. Therefore, any information about the start of production of a large batch of new equipment or the construction of gigantic complexes using silver at the same time rapidly increases the demand for metal. And, according to economic laws, this inevitably leads to an increase in prices. So any information is useful and should be taken into account when considering metals as a subject of investment.
Also, the supply and demand is affected by the availability of the item. Gold and silver are mined in a few countries, and if in one of the workers strike begins, then demand and price increase simultaneously. A similar situation will occur if one of the countries refuses to export precious metals.
You can not ignore the historical value. There is a certain price discrepancy between gold and silver on the market. If earlier the ratio of value was 1 to 15, now it is 1 to 74. The gap of almost 5 times indicates rather an artificial retention of the price level, which could collapse due to sharp fluctuations in demand or supply.
The foreign exchange market and the economic situation, even in a small region, can significantly affect the value of silver and gold. So far, no country has managed to avoid a fall in the exchange rate of its own currency - where slowly and a little, were swiftly and in huge steps. Depreciation of the currency leads to the search for more stable assets, which are gold and silver. Their panic buying, in order to somehow have a stable asset, always leads to higher prices for precious metals.
One may wonder how oil affects gold and silver. In fact, their prices are completely interconnected and, if the first rises in price, then the price rises to the second. In the context, again, of a limited number of oil producing countries and their location (Middle East), where the political situation is always tense, there is a high probability of a military conflict. And it, as a rule, leads to a sharp reduction in oil production, which directly affects the cost of gold and silver.
Thus, we see that any news, even from the most distant state, can significantly affect the precious metals market. So, if you are going to consider gold or silver as an investment, then you should analyze in detail each change in the financial or political markets.