Stocks grow due to increases in companies’ profits. Crypto is mainly due to a change in the supply-demand balance. Currencies move as countries solve some issues and create others. Among these assets, there are metals affected by all of that, plus some extra. Our new article is all about trading precious metals, pros, cons, tips, and tricks!
In the next several entertaining minutes we will uncover the fundamental factors affecting precious metals prices. You will learn when to buy gold and why sometimes silver is better. What’s the difference between economic uncertainty and recession and does rising rates affect gold negatively? All answers are here!
In general terms, metals can be divided into two categories: precious and base metals. They differ on a variety of factors, including resistance to corrosion, rarity, and use cases. Among precious metals, there are gold, silver, platinum, and palladium. Base metals are represented by copper, zinc, lead, nickel, and others.
Precious metals are rare, naturally occurring elements that have a high economic value due to their scarcity and unique physical and chemical properties. They include gold, silver, platinum, and palladium, and are widely used as investments, currency, and in various industries due to their perceived value and stability.
Precious metals don’t oxidize and are not exposed to corrosion, they look shiny, and most of them were used as money a long time ago. With FBS, you can trade every famous precious metal.
Base metals, also known as industrial metals, are typically used as raw materials in the production of various goods and products. They include copper, aluminum, nickel, lead, and zinc, and are less valuable and less rare than precious metals. These metals are widely used due to their low cost and widespread availability. Still, they may influence the economy of the country greatly. For example, Indonesia is home to 22% of the world's nickel reserves, making the country way more economically powerful than before nickel was found there.
With FBS, you can trade all four metals from this list. However, there are even more trading pairs for all your needs, so you can find a suitable precious metal to trade at any moment.
In a nutshell, every asset’s price depends on supply and demand. If some country found massive platinum deposits, the price may decline because the market starts to price in the rise in supply. On the other hand, the global recession may lower the demand for cars and catalytic converters, creating price pressure on platinum and palladium prices. Here’s what else drives prices:
To better understand the dynamics of metal in crisis times, it’s good to know that the USD is moving against gold. When the USD rises, gold falls, and vice versa. Silver is like a more volatile version of gold.
Correlation of gold and. the Fed Funds Rate
Platinum and palladium are both critical for car manufacturers, thus, they tend to slide lower as global demand for cars decreases.
It is the output of industrial establishments and covers sectors such as mining, manufacturing, electricity, gas, steam, and air-conditioning. To put it simply, the more industrial output the better. Bigger production doesn’t always mean bigger demand for goods. However, when these two things come together, prices almost always rise. Still, greater output (due to cheaper production) may overflow the market, making the demand side weaker, and pushing prices lower. Gold doesn’t get affected by industrial output changes too much because it’s mainly used as a store of value. Not so much gold goes into chips.
Palladium and platinum are under a heavier influence, as they are both mainly used for goods production.
Why does USD soar? Because when the Fed rises rates, money becomes more expensive. To put it simply, higher interest rates increase deposit yields and loan interest. Thus, people and companies slow down spending and try to save more money for the future. The economy slows, and currency becomes more expensive, rising against other currencies. All that creates price pressure for gold, making it lower when the Fed fights inflation.
Here’s how it works:
As for other metals, the situation is somewhat different. Platinum and palladium don’t get affected so much by the USD, so their movements are driven by other factors.
Here’s an example for you to get the idea quickly. November 2, 2022: US Federal Reserve increased the interest rate by 75 basis points, creating a huge uptrend movement for the USD. Gold slid 4000 points over the next few hours. When the Fed is hawkish, it pushes the USD up, making gold weaker. Silver usually goes into a rally when Fed keeps the interest rate near zero, making it somewhat similar to gold.
Correlation of silver and the Fed Funds Rate
What’s for palladium and platinum, these metals don’t get affected so much, but the overall economic fluctuations still get to them.
If we want to rephrase “Quantitative easing” we would get simple “Money printing”. The Fed creates more money on the market, making it easier for companies to raise capital. On the contrary, this monetary policy speeds up inflation. Precious metals surge when the demand for them rises. Also, they tend to love inflation and go up when prices increase. Gold and silver are true inflation fans, and platinum and palladium are more of an industrial production type of precious metals. Quantitative easing has a bullish impact on all risky markets, including stocks, cryptocurrencies, and metals.
The US monetary supply M0. Gold rose 41% when the printing machine started working in 2023
We told you pretty much everything you need to know about trading precious metals. Now, you know factors affecting the price of precious metals including economic uncertainty, industrial output, the USD movements, interest rates, and dovish monetary policy. Precious metals offer a unique trading opportunity for those seeking certain types of price action. By understanding the reasons behind metals' rises and falls, traders can make informed decisions about their future movements.
Turn knowledge into success with FBS by creating an account and trading every precious metal from this article. You can even choose alternative gold and silver pairs like XAUGBP (gold-British pound) and XAGEUR (silver-euro). We hope this article was helpful and informative, thank you!
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