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Factors that Influence the Market Value of Gold, Silver & Other Precious Metals

Jul 12, 2018

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Ever wondered how the price of your diamond engagement ring, wedding band, Rolex watch, or other value came to be? While much of the value might be from the design and construction, a large part is due to the price of the materials. With luxury jewelry, that generally means precious metals and diamonds.

In this post, we’ll outline the factors influencing the global precious metals markets. We’ll also go over just what a precious metal is.

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What are precious metals?

Precious metals are rare, naturally occurring metals most commonly used in the creation of jewelry and other valuables. They also have use in industrial settings.

Some precious metals include:

  • Gold
  • Silver
  • Platinum

In addition to holding economic value, precious metals and diamonds are generally very beautiful. For this reason, they are used to make luxury jewelry, including:

  • Diamond engagement rings
  • Period jewelry
  • Gold jewelry
  • Silver jewelry
  • Watches
  • Collectable coins

Given their beauty and rareness, precious metals and gemstones like diamonds are expensive materials that fluctuate greatly in price.

Below, find out what influences the price of precious metals and diamonds!

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Supply

The price of precious metals and diamonds are heavily influenced by how much available supply there is. Unlike manufactured or even agricultural products, you cannot simply just produce more.

Did you know that some people say all the mined gold in the world would only equal a cube with sides of just 67 feet!

Supply is increased through mining and discovery of new gold. As demand increases, it becomes harder for supply to keep up..

Fortunately, mining companies are becoming more efficient at extracting gold from raw ore (or rock that comes straight from the ground). Even though new mining projects may be hard to find, parts of old mines previously not worth mining can now be used. This is also good for the environment, since new gold is coming from older sources.

Supply through circulation

While the primary way to find new supply is through mining, existing precious metals and gemstones are already in circulation.

This has an effect on the market price of certain commodities, particularly diamonds and gold. While just one item may not have the power to swing an entire market, in aggregate the effects can be meaningful.

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Demand

Just as important as the supply of precious metals and gemstones is how much people want them, also known as demand. Demand can come from a variety of sources, both industrial and commercial.

Generally, precious metals and diamonds are thought of to be valuable because of how much people want to wear them and use them to make high-end jewelry. While this is a very important part of demand (and in our opinion the best use!), just as important are the monetary and industrial uses.

For instance, gold was historically used as the foundation for the United States dollar, linking it to the health of the US economy. While this is no longer the case, people still view it as insurance against inflation.

This means when the dollar gets “weaker,” gold will also raise in price.

Some common reasons the dollar could become weaker include:

  • High debt: If the US takes on lots of debt, it can weaken the strength of the dollar
  • Weak economy: If the economy is not strong and GDP growth is lagging, the strength of the United States dollar follows suit
  • Investors leave: When investment leaves the US markets, it shows a lack of strength in the US economy, causing the US currency to fall

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Technological innovations

Technological innovations can drastically change the price of diamonds and precious metals.

An example is diamonds, which in addition to being a stunning gemstone included in beautiful jewelry, are also one of the hardest materials on Earth. Diamonds are commonly used to drill and polish in industrial settings. Diamonds may become more expensive for jewelry buyers due to the additional need for them in industrial settings.

With the emergence of synthetic, or man-made, diamonds, industrial firms now have another source. While synthetic diamonds have visual flaws, a lack of character, and should never be used in jewelry, in an industrial setting they work just as well.

This will likely make the price of diamonds go down over the long run, since demand for industrial uses of natural diamonds will decrease.

Changes in popular culture or preference

Fads come and go. Some things, like a beautiful diamond engagement ring, may never go out of style. But you never know when a particular item or metal will suddenly cease to be fashionable and popular only to be replaced by something else.

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The economy

One of the largest factors affecting the market of metals is the general economy. Here in the United States, monthly unemployment numbers can turn the gold market on its head.

In addition to the correlation between gold and the larger market, economic shifts can affect spending habits of everyday people. Economic anxiety, or concern for one’s financial future, has a chilling effect on spending and generally forces people to save their money.

This not only affects how one might spend money on luxury goods, one of precious metal’s key end-products, but also the products made from the sectors that use precious metals and diamonds in an industrial setting.

Economic uncertainty

During recessions or periods of high unemployment, markets generally go down and take a while to stabilize. This is particularly true when there are up and down months of unemployment rates and quarters of GDP growth.

In these situations, the market will generally be volatile. This in turn causes a volatile commodities markets where one day a price may be high, just to have it drop drastically the next day.

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Political uncertainty

Political uncertainty is a volatile ingredient for precious metals and diamond markets for two completely separate reasons.

Firstly, with 2 different parties in an election or legislative fight campaigning or lobbying on different ideas for regulation, taxation, and economic reform, markets don’t know what to plan for. A lot of the time the market does not even care which side wins – it just wants clarity so it can prepare for the end-result.

Secondly, on the supply end, political uncertainty in the countries of mining projects can cause mining permits to suddenly be canceled, environmental regulations to change, or even worker strikes. These events can have major impacts of the price of precious metals even if the reality is more muted than the market’s reaction.

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What does this all mean?

Generally, it’s hard to know when to sell your precious metals or diamonds. With so many factors, it can be complicated to figure out the perfect time to sell.

We recommend not trying to find the perfect time to sell your valuables and instead selling it for a price YOU feel comfortable selling it for at a time that makes sense for you.

Sell your precious metals and gemstones at Samuelson’s Buyers

We’re proud to be Baltimore’s #1 most-trusted jeweler. We’re a family-owned-and-operated business and are 100% committed to your satisfaction. We’ll walk you through the entire process and make sure you understand why we’re pricing your item the way we are. You’ll never feel pressure to sell and we’ll be here to answer all of your questions.

Read our FAQs to learn more about selling your valuables with is or give us a call today at (301) 804-6176.

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