Australia is known to be among the world’s major precious metal producers and exporters. Due to their scarcity, gold, platinum, and silver are more sought after than base metals, like zinc, iron ore, and aluminium. Renowned precious metal traders, like goldstackers.com.au, sell investment-grade bullion. These precious commodities are used in various industries, such as jewellery, electronics, and dentistry, due to their pliable nature. For investors like you, precious metals are a primary store of value as they diversify your portfolio and safeguard you from global uncertainties.
By Team Savant
Image: Anne Nygård
Factors Determining Price
In terms of size, Australia’s gold and silver reserves are greater than that of other contributing countries. Its gold reserves are primarily concentrated in Western Australia, while New South Wales and Queensland have significant silver reserves.
Leading industry experts have ascertained that the below major factors significantly influence the prices of precious metals across the country.
Demand and Supply
The supply of precious metals is fairly limited in comparison to its demand. In keeping with the laws of economics, low supply, when combined with increasing demand, pushes the prices of that commodity upwards. With that same logic, when supply outweighs demand, prices plunge.
Industrial demand is also often responsible for a surge in precious metal pricing. For example, when gold or silver is incorporated as an electronic component in solar panels, it increases demand for these metals, thus inflating their corresponding prices.
Global Macroeconomic Environment
In times of a global crisis, whether political or economic, prices of precious metals generally surge as they are deemed safe assets due to their tendency to retain value even amidst uncertainty.
A healthy global economy, on the other hand, sees investors seeking out riskier avenues. This results in reduced demand for precious metals, bringing their prices down.
On the domestic front, Australia boasts of a healthy precious metal market. Almost all the gold refined in the country is exported.
During the pandemic, Australia has played a critical role by ably supporting the precious metal markets globally. Major Australian precious metal refineries and producers have remained operational during this period, compensating for closures elsewhere.
Inflation and Currency Movement
Rising prices or inflation impacts your purchasing power. Monetary policy decisions taken by governments are dictated by inflation figures as price stability is the ultimate goal of central banks all over. When domestic or global economic unrest occurs, precious metals serve as a monetary insurance policy for central banks.
In particular, any movement in the US dollar is what significantly impacts the value of precious commodities. Should the American dollar fall in value, it strengthens the Australian dollar, pushing precious metal prices up.
Silver, platinum, and gold are dollar-dominated precious assets, considering global markets measure these against the US dollar. The American dollar and precious metals share an inverse relationship wherein when the dollar is strong, these commodities dip in price and vice-versa.
Understanding the premise on which safe and precious assets like silver and gold base their pricing is essential. You will be keen to mitigate your risks as an investor, and for that, accurately assessing current market conditions and the economy's health is critical.