Precious metals such as gold and silver have been exchanged for centuries. Investors consider gold to be a “safe” investment and is usually used to hedge their risk in the financial markets. Today gold is used alongside currencies in the economic world.
Gold is just one type of precious metal, we will be looking at Gold, Silver, and Platinum/Palladium. All these metals are found in mining deposits all over the world. These deposits require infrastructure which consists of mining and refining before the metals can be ready for end use purposes. These metals have a variety of uses, you can find them in many electronics, construction equipment, jewelry and much more. As mentioned earlier gold also plays a large role as an investment and are held by main governments and central banks.
Supply for precious metals comes from mining as well as recycling from obsolete scrap material. However mining is the major source of new supply and accounts for 70-85%. This percentage changes over time depending on things like production cost, reclamation values and the economy. It is important to keep an eye on the sources from which the specific commodity is coming from.
Gold is is mined all over the world and it has a wide variety of use cases. But most importantly investors use gold as a safe investment during economic downturn. Gold reacts inversely to the stock market. So when economic future looks uncertain investors put their money in gold. Aside from investments gold is used in a lot of electronics as it is a major component in semiconductors.
Silver has the largest supply out of the four major metals (Gold, Silver, Platinum and Palladium). Mexico currently is the largest supplied for silver. Silver is often a co-product of gold and copper. Silver is also heavily used over a wide range of end uses. Ranging from electronics to medical uses.
In summary most precious metals can be broken down to either end use or investment use. It is important to understand the effect that both of these have on the price of the precious metal in question.
News about Brexit has resulted in uncertainty for the global economy resulting in people putting their money in gold.
Example 2: Finance Market Downturn
Finance fears in 2008 led to a lot of people liquidating their positions in the financial markets. This fear in the financial markets results in assurance for the gold market.
Example 3: Reduced Stimulus Spending in Economy
Reduced stimulus spending in the U.S. economy results in a stronger dollar. The relationship between gold and the U.S. dollar is negative, they move in opposite directions.