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Top Factors That Influence Gold and Silver Prices

Updated on October 19, 2017

Factors That Influence Gold and Silver Prices

Gold and silver are both excellent stores of value and both have performed consistently over the past years. This makes them sought- after assets for investors both big and small. Although these precious metals have steadily improved in value over the years, it is still important to learn how to time your investment in them. Learning what factors influence gold and silver prices allows you to buy or sell the metals in such a way that your gains are maximized.

The Fate of the Dollar

When the public starts to lose confidence in the prevailing currency, it turns to safe havens like gold and silver. The fate of the dollar influences gold/ silver prices to a substantial extent owing to this. When the government announces fiscal policies that may keep the value of the dollar subdued, gold and silver prices improve in sympathy. The same happens when dollar value declines owing to poor economic conditions or due to political uncertainties or a general global slowdown.

Low Interest Rates

Stocks, shares and fixed income instruments (like bonds) are excellent assets to hold when interest rates are high. The same goes for cash deposits at banks. When interest rates dip or are controlled by the Federal Reserve, the returns offered by such paper assets is no longer attractive. Gold and silver, which offer great resale value and assured appreciation, take the place of paper assets as viable investments. This boosts demand and prices for these precious metals.

Expectation of Inflation

When the market expects inflationary trends to make an appearance, strong stores of value like gold and silver tend to be in demand. Investors know that gold and silver retain their purchasing power when it is impossible to say how the currency will fare. In an inflationary market, a portfolio that is equity intensive is under threat of severe devaluation. Adding strong stores of value like gold and silver hedges the portfolio and insulates its net worth from eroding during inflation.

The Relationship between Gold Prices and Silver Prices

Although it may not be very apparent to new investors, there is a definite link between gold prices and silver prices. Silver has a number of fundamental price drivers associated with it. Yet, the white metal is heavily impacted by that of gold. When demand for gold improves, resulting in a price increase for the yellow metal, silver demand and prices follow suit. Both gold and silver are considered great assets to own when the economy is uncertain. When the market appears to be veering around towards gold, many investors, particularly those with limited budgets start moving into silver to duplicate the tendency to invest in safe havens. In general, when gold price zooms, silver prices may keep pace but when gold prices dip, those of silver fall by a greater margin.

There are many factors that influence both retail and wholesale gold and silver prices and knowing these helps the investor make a judicious buy- sell decision. This knowledge also helps the investor time his acquisition or sale right so that he makes maximum gains.


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    • MarieAlana1 profile image

      Marie Alana 5 years ago from Ohio

      Great hub! Great Idea! You should put a poll on this hub that asks how much gold or silver are you holding onto? It would be interesting to see.