What Moves the Needle on Precious Metals Spot Prices? 

Factors that Influence Silver and Gold Price Predictions

Precious metals spot prices are in constant flux. According to World Bank’s Commodity Markets Outlook, the Precious Metals Index faces an uphill battle through the rest of 2022, after falling from its pinnacle in March. Gold prices show the most durability, while silver and platinum prices have shrunk along with demand. Palladium prices have been more turbulent, dropping significantly following a peak at the start of the war in Ukraine.

Though gold and silver spot prices were expected to rise in 2022 due to high inflation, we have seen the opposite — but why? What moves the needle in the precious metals market? Well, if we knew for sure, you and I might own a private island by now. But the answers are mysterious.

This article will tackle a few of the factors that have consistently impacted precious metals spot prices.

The Stock Market vs Precious Metals

One factor is the stock market’s inverse relationship with precious metals value. For example, in 2019 we saw a mini-rally in precious metals spot prices after President Trump announced additional tariffs on Chinese imports. Gold strengthened by 8% even as the equity market dipped.

At the same time, gold ETFs (exchange-traded funds), like the SPDR Gold Shares ETF and the VanEck Vectors Gold Miners ETF, also outperformed global equity markets. Dave Nadig of ETF.com told CNBC’s ETF Edge, “By the amount of gold in the vault, ETFs are at about 80% below all-time highs [from 2012]. All we’ve got is demand from folks who are looking for safe-haven assets on days like today.”

When stock market instability, at home or abroad shakes their confidence, investors rush to shore up their accounts. They stabilize their returns with physical gold and silver, sending precious metals spot prices higher.

How Whispers Turn to Precious Metals Investments

Official statements about recession fears, bond yields, and interest rates influence the appeal of precious metals. Even rumors drive spot prices up or down. During the second quarter of this year, for example, speculation about a possible recession led to a rise. In a recession, inflation should drop, and the Federal Reserve would cut interest rates. However, in September the Fed announced a 0.75% increase.

Gold prices remain relatively unchanged due to a weaker dollar, but the future of precious metals spot prices is dependent on traders’ reactions to central bank policies.

Three Factors that Influence Precious Metals Spot Prices

When looking at spot prices for precious metals like gold and silver, keep in mind that there are factors that “move the needle” short term and factors that affect long-term price predictions. A few long-term examples include:

• Inflation — Investing in gold is a hedge against future inflation. History shows us that economies and markets are cyclical. As commodities prices rise following low inflation and weak growth, gold prices trend upward as well.
• Geopolitical events — The instability and uncertainty of the past several years illustrate that any major event could disrupt global markets, thus highlighting the long-term value of precious metals.
• Central bank purchases — Central bank decision makers increased gold purchases since 2010 because that allows governments to diversify themselves from USD and EUR denominated assets. These actions likely contributed to the increase in precious metals.

Interest rates may be the most important factor in determining the future direction of the gold market. Raising interest rates makes higher-yielding investments more attractive than precious metals. Sure, a dollar index decline or equity sell-offs can also move the gold price higher. But the Federal Reserve Board of Governors may create volatility by taking different positions in the news every week. Case in point: September 19 saw gold reverse course and close down after the Fed cut interest rates to head off recession.

As we’ve seen, factors large and small move the needle on precious metals spot prices. You can help direct your silver and gold price predictions and investments by keeping an eye on the stock market, interest rates, and economic events. After 40 years in the business, I haven’t seen it all, but I hope this information is useful to investors considering precious metals as part of their balanced investment portfolio.

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure and each includes a comprehensive customer PowerPoint about the topic):

• All About Asset Allocation

• Goal Based Investing- Planning for Key Life Events

• Estate Planning & Asset Protection in an Hour

This is an updated version of an article originally published on March 7, 2016. It has been updated by Nora Willi.]

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