Precious Metal Price Influencers – 10 Factors that Affect Gold & Silver Prices

When you look at the live spot prices of precious metals, it can be a bit confusing as to why the prices go up and down. Understanding the ebbs and flows of the markets can be complex since there isn’t ever only a single reason why the price of gold or silver is the way it is. 

Let’s take a closer look at the top 10 (ten) reasons why the price of gold and silver is the way it is so that in a few short minutes you will have a better understanding.

1. Supply of Gold and Silver

Supply is mostly governed by the speed at which miners can remove the precious metals from the ground and process it. This can depend on the economic interests of the mining operation, the country they operate in and the equipment they have there. For example, the Muruntau mine in Uzbekistan is the largest gold mine in the world where more than two million ounces of gold are mined every year. If Uzbekistan’s economy or country’s stability becomes fragile, this could detrimentally affect the mine’s operation and significantly dent the supply of gold for key mints around the world.

Russia recently made some grievous errors in judgement and although its mines resulted in 1,300,000 metric tons of silver in December of 2021, its future will be rough to say the least. Many investors saw this as a reason to invest in silver, and the price rose significantly before, during and after the Russian invasion of Ukraine.

Complicating this “supply” reason is that the owners of mine operations can choose to stockpile precious metals and release them for the open market when it is financially more advantageous for them to do so.

2. Stock Market Volatility

Global, national, regional and corporate activities can play havoc with the stock markets of the world, leading to an increase in volatility. This concern with corporate performance as well as govenrment stability often affects other areas, like the price of precious metals. Since precious metals (gold, silver and platinum) are often purchased as a hedge against the economy, stock market volatility often results in rising precious metal prices, while strong and prosperous economies result in the opposite.

3. Interest Rates

Interest rates in the U.S.A. and Canada are currently very low, and result in precious metals underperforming until rates rise again. Often this is because rising rates negatively affect the borrowing capacity of businesses and raise their expenses. Instead of betting on business growth, investors put their money in the stability of gold and silver to diversify their portfolio.

4. Asian Economy

Since China and India account for more than 50% of total gold demand, these countries’ GDP are partly connected to precious metal prices. Many of North Americans’ favourite electronic devices take place in these two countries, all of which require some amount of gold and silver. Did you know that almost half of all silver is used in industry and technology? Watch industrial and technological growth in developed nations, see how that relates to the Asian economy and watch the prices fluctuate.

5. Hedging Inflation

Inflation is when there’s an increase in the prices of goods and services in an economy, resulting in consumers having a decrease in the value of their money. When inflation is at its worst, precious metals are often at their best. Precious metals like gold, silver and platinum are often used as investment tools to hedge against inflation, where people can reliably seek stable and strong investment methods.

6. Investor Behavior

Investors can be fickle and not always be rationally thinkers, which can result in money being invested in assets that may not always be the best source fo future profits. Think of Beanie Babies, 1990s sports cards and GameStop stocks. These actions can lead investors to choose more safe investments, like precious metals. 

The opposite is also true. Investors who start investing in gold and silver may reduce their investments in other areas, which to the extreme can result in negative stock market actions.

7. Technology Demand

Like we previously mentioned, the North American market has high demand for technology, including the latest gaming systems, mobile phones, vehicles and home appliances. This demand for technology – and the silver and gold found within them – can drive demand for precious metals around the world. 

8. Strength of Currency

Although gold and silver have been used as currency in the past, it is the strength of the dollar of the American and Canadian markets that can raise and lower the prices of gold and silver. When the country does well economically, the value of its dollar increases, and can hinder or help to rise the price of precious metals.

9. Prices of Other Precious Metals

If there is strong demand for silver, there is a good chance that the enthusiasm and desire to purchase silver as an investment will also move over to gold and even platinum. In mining operations, silver, gold and platinum can often be mined from the same deposit, so if supply is affected for one metal, it is likely going to immediately and directly affect others. 

10. How Much Precious Metals are Stockpiled by Businesses and Governments 

Although China and India are the two largest users of precious metals, the largest gold reserves can be found in the U.S.A. (The U.S.A. has more than double the next countries: Germany, Italy, France and Russia.) The largest silver reserves are found in Peru, Poland and Australia. Depending on the wants and needs of the currency government administrations as well as the future projections of the price of gold, silver and platinum, a country can choose to increase its reserves or decrease its stock. Either of these can raise or lower the prices of gold, silver and platinum.

Royal Bull understands that there are many factors that affect the price of precious metals, but we are here to help Canadians make wise buying and selling decisions that will ideally benefit you now and many years to come.