The Impact of Global Economic Trends on Precious Metal Prices
Creating Security with Precious Metals Investments
The allure of precious metals is undeniable when you hold that gold coin or bullion for the first time. Silver, platinum, and copper soon follow, not just as mere collectibles but as cornerstones of any investment portfolio. In a time where the display of wealth has shifted from showing off one’s jewels, to the nuanced portfolios of the savvy investor, precious metals have retained their luster.
Now, it’s not the glitter of gold on one’s neck that signifies wealth, but the gleam of a well-curated investment portfolio where metals, like gold and silver, are not just assets, but treasures that promise stability in an ever-changing financial landscape.
Precious metals are at the heart of a well-diversified portfolio, with gold at the top of the group. The U.S. dollar, until 1971 under President Richard Nixon, was based on the gold standard, but was abandoned as a method to curb and control inflation. When the economy slows down, paper money loses value and prices rise, as we are seeing in this current economy. But gold and other precious metals are viewed as a safe haven.
So why not put the gold standard back into action? The Federal Reserve Bank points out that while the U.S. “mines a lot of gold, we’re not the biggest producer.” If gold remained the standard, then those countries with more gold in their reservoirs could control the U.S.’ monetary policy and, as a consequence, control our country’s activities.
When wars and other unwished-for events occur, our global economies suffer. But how do economies fare during wartime or other disastrous events, and how do these events affect the marketplace, particularly when investing in precious metals?
Section 1: Understanding Precious Metals
Before getting into the effects of economic fluctuations, it is important to show how precious metals are also used in industrial applications, not just as jewelry. Gold is often used in small amounts for electronic devices, such as cell phones, televisions, and computers, due to its high-level conductive capabilities. It is also found in space capsules as an insulation component to protect against high heat and radiation.
Silver is found in solar panels to aid with harnessing the sun’s rays, as cutlery, in developing film, x-rays, antibiotic medicines, batteries, and more. Platinum is used in automotive catalytic converters, computer hard disks, and oil refinement.
Copper is most often used in generators, transportation vehicles of all types, refrigerators, wiring of any kind, and is highly valued by thieves, causing safety hazards for rail lines, street lamps, construction sites, and more. On the positive side, beautiful copper sinks installed in kitchens are coveted for their beauty and antibacterial properties.
So is copper cookware which become family heirlooms, and copper kitchen fixtures.
Precious metals, therefore, factor into the economy in many ways, not solely as a financial investment. Used as significant industrial applications in many products we use daily, precious metals become more in demand and higher in price, whenever the economy takes a downturn, especially if supply chains are lagging behind. Which leads us to the next section on how economic factors raise or lower the value of precious metals.
Section 2: Factors Influencing Precious Metal Prices
COVID-19
The COVID-19 pandemic, which swept across the globe in 2020, had profound impacts on public health, economies, and the daily lives of billions. Initially identified in late 2019, the virus led to a global health emergency by early 2020. Governments worldwide imposed lockdowns and travel restrictions in an effort to contain the spread, resulting in unprecedented disruptions to economic activity. Unemployment rates soared as businesses, especially in the hospitality, travel, and retail sectors, faced closures or significant operational limitations, laying off millions of workers.
Economic Disaster
The rapid business closures and job losses reversed the gains of years of economic growth, pushing unemployment to levels not seen in decades. The pandemic also exposed and exacerbated vulnerabilities in various sectors, including healthcare, supply chains, and education, leading to widespread social and economic challenges.
Financial Markets
The financial markets reacted with volatility to the uncertainty brought by the pandemic. Initial panic selling in March 2020 led to steep declines in stock markets around the world, with the Dow Jones Industrial Average and other major indices experiencing their worst drops since the 2008 financial crisis.
However, markets began to recover in the following months, buoyed by unprecedented fiscal and monetary stimulus measures from governments and central banks aimed at stabilizing economies and supporting financial systems. This recovery, however, was uneven, with technology and healthcare sectors (i.e., telemedicine) showing resilience and even growth in some sectors, while industries more directly impacted by the pandemic, such as travel and hospitality, lagged behind.
Supply chains for semiconductor chips and associated products, for example, suffered greatly with backlogs of orders, due to not getting parts on time. It was the first time that everyone understood the calamity of having all one’s production and manufacturing occurring in far-off countries.
Precious Metals
Precious metals, particularly gold and silver, saw significant increases in value during the pandemic. Traditionally viewed as safe-haven assets during times of economic uncertainty, both metals experienced price surges as investors looked to hedge against stock market volatility and potential inflation driven by massive government spending and central bank stimulus. Gold prices reached record highs in August 2020, reflecting heightened demand amidst the global economic downturn.
Section 3: The Effects of Wars
Ukraine-Russia War
In February 2022, Russia began a missile attack, then sent military troops into Ukraine. This country had already lost Crimea in 2014 when Russia annexed it in March of 2014. Since then, the 2022 war has had devastating effects on Ukraine’s people. Poverty rose from 5.5 percent to 24.2 percent during that year. Ukraine is also one of the largest global exporters of maize, barley, and wheat, and with the war, much of the farming industry is now destroyed or reduced.
Globally, the gross domestic product (GDP) scores show every country has suffered more losses in GDP for 2023 over 2022 (See Fig.2). Likewise, global inflation rose as well (See Fig.3). In today’s world, when something traumatic occurs in one place, it reverberates around the world, affecting all countries, not just one or two.
Israel-Hamas War
Four months since Hamas invaded Israel on October 7, 2023, inciting a war, Israel’s response continues their search for the enemy. As part of the Middle East, a major global provider of oil and gas, should the war expand to other countries, the price of oil per barrel could rise from $90 to $150. This could push global inflation higher than it is today.
The Houthi militias, for example, are attacking transportation vessels in the Red Sea, water levels are down in the key passageway, the Suez Canal, all of which is causing transport logistics suppliers to switch gears, looking for alternative travel routes.
The Market State of Precious Metals
During all the occurring disastrous global events, the one stability found anywhere, is in gold and other precious metals. Paper money can be printed at will by governments, but gold and other precious metals remain stable, with prices rising whenever the American dollar, the British pound, or other monetary system moves downwards. You can call it a “protective shield for wealth.” For fun, if you would like to see how gold prices changed over the past 100 years, visit Macrotrends to view their interactive chart. You can also download the data set for a more personal view if you like playing with spreadsheets.
Conclusion
It is hard to predict how global events will go as it is a very volatile world we live in. If you are looking at entering the investment market, then begin studying the correlation between what is happening on global levels, then comparing the daily marketplace as prices rise and fall, and which investments rise, while others fall.
If you are considering adding precious metals to your investment portfolio, particularly gold, silver, platinum, and copper, then connect with Kzoo Bullion to find out more about how to get started right away. Call us at 989-423-1018 or email us at info@kzoobullion.com and we will get back to you shortly.
