What you need to know about the precious metals market
Recently, there has been some pretty major geopolitical news in the markets. With the trade war between China and the USA running strong, many traditional investors are now seeking alternate methods of wealth protection. To many investors, this means transferring their wealth into hard assets such as real estate, collectibles, precious stones, and perhaps the most common, precious metals like gold and silver. Precious metals are considered one of the soundest wealth protection assets by top finance experts.
Today we’re going to take a look at some of the more recent price trends for the three most common precious metals traded (gold, silver, and platinum), and discuss why an investor may consider these assets their harbor when the market waters begin to get choppy.
First, let’s take a quick look at the three main markets.
Gold
At the time of this article’s writing, Gold/oz’s price history is as follows:
· $1,206.20 | 30-day high
· $1,201.20 | 7-day high
· $1,182.30 | 30-day low
· $1,184.40 | 7-day low
Recent news seems to indicate a sideways sentiment toward gold as reported by Kitco’s Jim Wyckoff, with no major recent news producing vast moves in the market. The trade war between the USA and China continues to be a talking point, however, Jim believes the greatest amount of investors are still relatively modest with their risk aversion at this time, keeping them from making a run on the gold market.
However, Jim notes the possibility that a bottom may be in place, due to the sideways trend over the last few weeks. Valeria Bednarik, Chief Analyst at FXStreet, seems to agree through her own analysis as well, stating “A more solid advance past 1,208.75 could be an encouraging sign for bulls.”
It remains to be seen if the trade war continues to have no effect on the markets, or if the gold bulls are waiting to see that spark ignite for a run on the markets and new highs being made.
Silver
Now let’s take a look at silver/oz:
· $14.61 | 30-day high
· $14.59 | 7-day high
· $14.04 | 30-day low
· $14.26 | 7-day low
Bloomberg recently released some confident news for silver citing Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. Fritsch stated that a 17% rise in price is within his expectations. That is nearly twice as much as gold!
It also seems that the market may start feeling some strain regarding actual silver supply in both coins and bars, which may be affecting price like it has for the gold market. As precious metals are natural resources, the supply is dictated only by how much we can pull from the ground. If that supply starts dwindling, then spot price would begin rising. These factors combining with similar sideways trading like gold could see a movement in price either direction, but with silver’s market history, it’s really anyone’s guess.
Platinum
Finally let’s take a look at Platinum/oz:
• $838.00 | 30-day high
• $827.95 | 7-day high
• $789.40 | 30-day low
• $821.85 | 7-day low
Platinum has also made a few headlines in the recent weeks as it has reached newer decade lows. With Bloomberg reports of supply not slowing down, it will be interesting to watch the price action of one of the world’s rarest metals in the coming days.
As platinum surplus increases to a total of 310,000 ounces this year alone, this downward price trend could continue. Unless stricter emissions laws are implemented, industrial use of platinum will likely remain at a slow pace. Even though several mines are reportedly planning on reducing output and cutting jobs to mitigate losses from the new lower prices, Ben Davis, an analyst working with Liberum Capital Ltd, believes with these current trends the market could take several years before prices see recovery.
However, Bart Melek, TD Securities head of strategy, has a differing view of the current platinum market. He believes that rising gold prices may also help boost the ailing platinum market as the USD weakens and gold and the South American Rand strengthen once more.
“Platinum’s close correlation has been one of the reasons why it has been hit so hard, as the gold environment became increasingly difficult. The yellow metal has suffered as traders started to re-price treasuries as they believed that strong US growth, multi-decade low unemployment may very well keep the Fed on its dot plot trajectory into 2019. Gold and therefore platinum also suffered as EM turmoil drove capital into the greenback,”
Bart Melek, TD Securities
Why should you invest in precious metals?
From the ancient Egyptians and Greeks, the kings of the medieval age, to modern day citizens, there has always been an innate fascination for precious metals like gold, silver, and platinum.
Even though it may be hard to fathom today, in ancient civilizations, precious metals were generally only owned by the king or other members of the bureaucracy. This meant that the ability to own these precious metals (like gold) were limited to the few and your everyday citizen never had the chance to invest in these commodities.
However, today, things are a little different…
Millions of investors consider gold and silver to be one of the best alternative investments in the case of impending financial crises.
When stock prices fall, and uncertainty takes hold of the market, these savvy investors will look to gold, silver, and platinum for weathering the market storm and hopefully even making a profit. In many cases, a precious metal investor will be diversified, keeping a supply of gold and silver, as well as stock assets, bonds, and real estate in order to keep their assets well rounded.
These investor considerations become even more important with the ever-looming threat of inflation and depreciation of currency values like the US dollar and the British pound. Investors looking to brace for economic crisis and bank runs will have a sizable portion of their money held in physical gold and silver to use as currency should the coins and paper bills of their government become worth less.
It stands to reason that these investors would also be invested for a longer term than those seeking protection from a bear market in stocks. If worse comes to worse, these investors could possibly opt to pay for their daily needs using the gold and silver they had stashed away in the event of a currency’s crash in value.
With precious metal ownership, also comes a few perks like the liquidity, scarcity, and market demand for gold and silver. Unlike stocks and bonds which require a broker, or real estate which can lock up funds for a long period until a buyer is found, precious metals can be liquidated comparatively easily when put up against these other asset classes.
Protecting yourself from hyperinflation
If there’s one word that will scare any investor on the planet, hyperinflation would easily be in the top five. Protecting against it is one of the primary goal of many investors and precious metals like gold, silver, and platinum are considered to be the most accessible investments in such a crises. Hyperinflation consists of two basic factors of economics, but taken to the extreme: inflation, and deflation.
Hyperinflation begins as its name implies with a sudden drastic upward shift in the cost of living. Gas prices, food, water, shelter; all of these basic costs of living become more and more expensive at a startling rate and markets see a dramatic shift.
Gold has, historically, not only held up in these periods, but actually tends to see an increase in price alongside the cost of living. This makes precious metals incredibly desirable to individuals wanting to protect their wealth.
Importantly, hyperinflation also causes deflation in the affected country’s currency. Rising prices of living essentials beget a drop in confidence in that country’s currency as the public realizes the purchasing power of the money in their pocket is dropping drastically. Historically, the precious metal market can then begin its rise in price and demand increases dramatically causing the price to increase as well.
At the end of the day, it is up to the individual investor if this asset class is right for them. Investors looking for protection against financial crises could be well served with precious metals. Precious metals also serve as a great first start when looking at new opportunities to diversify your investment portfolios.
There are a million different ways to invest and get in on different market actions. Always remember to do your own research and come to your own conclusions and, hopefully, this article has given you some inspiration to check out other assets that you can diversify with.
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