Bullion is an intriguing asset for investors who are looking for alternatives to stocks and bonds. Gold and silver bullion products trade like commodities, but with the unique advantage that they are very easy to actually take possession of and store on your own.
You can invest in bullion directly through bullion dealers like Global Bullion Suppliers, who sell gold and silver coins directly to investors. Bullion allows you to reduce third-party risks and invest in something tangible.
But is bullion a good investment? Historically, gold and silver have fulfilled a specific role in wealth preservation, and it can be a very effective addition to your portfolio. In the short term, these are five of the most important factors that can impact gold prices.
1. Market Volatility
Part of the appeal of gold is that it provides long-term stability. While gold prices fluctuate as they do with any asset, gold tends to provide reliable returns compared to the value of the dollar over decades. Investors like bullion as a safe haven when the market is unpredictable.
High market volatility tends to exert upward pressure on gold prices. The first half of 2023 proved to be very volatile for equities, but by the start of the second half, volatility hit record lows.
2. High Inflation
One of the reasons you’ve likely heard about investing in gold lately is that it is one of the better assets available for fighting high inflation. Most Western economies had spent the better part of the last two decades in a low inflationary environment.
Post-COVID, high inflation came back in a big way, driven by government stimulus that kept economies afloat during lockdowns and pandemic restrictions.
While inflation has cooled in many places, analysts expect it will be quite some time yet until inflation reaches pre-pandemic stability.
3. Global Events
Market uncertainty isn’t affected by economics alone. Global events can have a major impact on markets and investor sentiment. When global events happen that threaten the stability of trade, markets are negatively impacted, so investors are highly responsive to the headlines.
When they see events that they think will have negative repercussions on the market, they seek out safe havens like bullion.
4. Supply and Demand
The price of commodities, including bullion, is always impacted by supply and demand. As physical goods, it takes money, time, and labor to extract gold and silver, and there is a finite quantity of them in the earth.
When market demand outstrips supply, there’s upward pressure on prices. Where does demand for bullion come from? With gold, demand largely comes from the jewellery industry and investors. Silver is another matter, though, as about half of silver demand comes from industry. Much more silver becomes non-recyclable than gold.
5. Recession Fears
Investors also pay close attention to indicators that a recession may be on the horizon. These include job market numbers, industrial output, GDP contraction, inverted yield curves, and the volatility index (VIX).Recessions can be tough on profit margins and bad for stock markets, spurring demand for alternative assets.
Like any asset, bullion is never a sure thing, but it provides a level of stability and reassurance that shore up your portfolio during times of uncertainty and volatility. Diversify into bullion and get access to a unique asset.