As we’ve seen over the past few weeks, precious metals prices have declined. Notably, gold and silver have been on a downturn. Many factors may attribute to the falling prices of gold, silver, platinum, and palladium. Primarily, many different economic and political factors impact precious metals pricing. 

For example, the Federal Reserve’s monetary tightening began recently with the consistent rising reserve rates. In the economic recession in 2009, the federal fund rate hit the zero lower bound. Since then, the federal reserve has been consistently raising the fund rate slowly. This is to try and negate rising inflation rates from going above the target of 2%. This consistent increase in the interest rate has made precious metals less popular due to higher bond yields. Thus, making these commodities less attractive to investors since they can collect higher returns in the bond market.

Reasons in Fluctuating Precious Metals Prices

Dollarization also is a major factor at play. It affects the drop in prices. Dollarization is when a domestic country uses foreign currency as a legal tender. Since the dollar backs precious metals, this makes it more expensive for foreign investors to hold physical metals. This will decrease the demand for gold and silver. While the dollar is currently appreciating, (3.8% this month alone), it is hurting foreign economies. It hurts these economies by increasing their import costs, debt costs, and prices of physical metal investments. With the appreciating dollar, many foreign economies will look for other investment opportunities that offer higher yields. 

Another factor that can attest to lower precious metal prices is the regular business cycle. The business cycle consists of historical trends that prove recessions and expansions are inevitable. Since the end of the Great Recession, May 2018 has been one of the most extended expansionary periods in economic history. It went for 107 months. This is just short of the technology-fueled expansionary period that lasted ten years.

This expansionary period is still believed to improve with a rising expected GDP rate of 2.9% in the fourth quarter of 2018. The expansion is likely to increase due to the falling unemployment rate. The rate fell to 3.9% and is expected to fall even further to 3.6% by the middle of 2019. These factors might seem promising to a continued expansionary period. Yet, the historical business cycle suggests that there will be a contractionary period shortly. We can already see the lead up to this contraction due to monetary tightening, dollarization, and a long history of historical trends. These trends have been inevitable for a plethora of reasons.

Precious metals prices
Chart courtesy of www.tradingview.com

 

Why Invest in Precious Metals?

Although markets are extremely volatile and unpredictable, there are many ways in protecting your investments. You have IRAs and 401ks as some of the most popular forms. Diversifying your portfolios with ETFs, Mutual Funds, and physical Precious Metals are optimal ways to protect any investment accounts. These protect from market volatility, unpredictability, and everyone’s worst fear, recessions, and depressions. Any recession or depression can reduce anyone’s portfolio by great percentages.

One of the safest ways of protecting your portfolios during a recession or depression is by investing in physical precious metals. During these economic downturns, the consumer price index (CPI) increases, business growth slows, and markets crash. Precious metals and the stock market move at an inverse rate. So, the time to buy these metals is slowly winding down. While markets and economies are doing well, precious metals prices are falling. This can be seen at the beginning of 2018 when gold began a slow decline. It rapidly fell in value since mid-Aprill 2018.

Precious metals prices
Chart courtesy of www.tradingview.com

Due to this fall in price, it is the optimal time to invest in precious metals to hedge against the soon-to-be rise in inflation. This marks by an increase in the CPI level from 2.1% on all goods in January 2018 to 2.5% on all goods in April 2018. This increase in the CPI indicates inflation since the prices of all products are increasing. Investing in precious metals is one of the safest ways to protect oneself during a recession/depression. Especially this contractionary period in the average business cycle.

Protect Your Investments

Bullion Exchanges features a wide selection of precious metals products in various types, qualities, weights, and designs. The diversity of these products range from coins and rounds to bars and ingots. These will appeal to any collectors or investors looking to protect their investments during these certain contractionary periods. Add these beautiful metals to your collection and investment portfolio today. We will safely package it and provide speedy delivery. If you have any questions about this or any other silver round in our collection, please reach out to us. You can use the chat feature on our website. Or, email us at customerservice@bullionexchanges.com. aOur friendly associates will gladly assist you. 


Samuel Kanda
Bullion Exchanges Market Analyst
This article is third-party analysis. It does not necessarily match views of Bullion Exchanges. Readers should not consider it as financial advice in any way.

Bullion Exchanges is located at 30 West 47th Street in New York City’s Diamond District. We are open Monday through Friday 9 A.M. to 5 P.M. Or, online anytime at BullionExchanges.com


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