What factors affect the price of metals?

The cost of some commodities has increased, the price of industrial metals, as economies throughout the world begin to recover. Depending on a number of variables, the base metals trading increase may lose steam to a greater or lesser amount.

According to the recent chart of the week, metal prices have grown by 72% since the beginning of the pandemic, reaching a nine-year high in May. These terms are adjusts by Inflation. The upsurge has been widespread across industrial metals; for example, nickel has increased by 40% while iron ore increased by 115% in May.

Most agricultural and energy commodity prices are also rising, albeit more slowly. Oil, coal, and natural gas prices, are only a few percentage points higher than they were before the pandemic.

Why did the base metal trading price rise so much faster than that of other commodities? Four factors in base metals commodity prices exist:

SUPPLY-SIDE FACTORS:

COVID-19 temporarily halted a number of mining operations. Furthermore, because of port congestion, quarantine limitations, ongoing issues with crew manning, and recovery in fuel costs from the deep lows in Spring 2020, freight rates for the transportation of bulk cargoes hit a ten-year high. All of this raised the base metals commodity prices.

A MANUFACTURING-BASED RECOVERY:

Manufacturing activity recovered more swiftly than services, especially in China, which is the world’s largest consumer of metals, and did not see as big of a decline at the onset of the pandemic. At the same time, industries that heavily rely on energy commodities, such as the transportation industry, continue to be affected. For instance, the consumption of transportation fuels worldwide is still 93% of pre-pandemic levels, which is preventing a further increase in oil prices.

STORABILITY OF METALS:

Metals are more easily stored than crude oil or some agricultural products, which require specialized facilities. This makes their pricing more progressive and, as a result, more sensitive to changes in interest rates and market expectations, like those about a quicker energy transition and infrastructure spending. The lower interest rates decrease the “cost of carrying,” which also includes the cost of storage, insurance, and other expenses, and, therefore, tend to support commodity prices.

EXPECTATIONS FOR FASTER INFRASTRUCTURE SPENDING AND ENERGY TRANSITION:

Metals prices received a further lift from optimistic expectations regarding the speed of the evolution to a greener and more prosperous economy and determined infrastructure projects. Both would raise the global economy’s “metal intensity.”

According to the International Energy Agency, a quick energy transition may see a 40-fold increase in lithium consumption for electric vehicles and renewable energy sources. 20–25-fold increase in cobalt, graphite, and nickel consumption for these uses. The demand for copper, iron ore and other industrial metals would increase due to the striving infrastructure initiatives in the European Union and the United States.

Now we will discuss the metal commodity prices separately and which factors worked behind the price diversions.

Gold

Whenever there is geopolitical unrest, demand for gold increases enormously. Other significant factors influencing gold prices on the international markets include the continuous adoption of a loose monetary policy in industrialized nations and currency risks. The lack of supplies, which have not been able to keep up with the expanding demand, especially from China and India, is another important concern.

Over the past few years, there has been a huge increase in the price of gold, according to the metal pricing index. The outlook for gold investments is still very positive. The reason for the bullish outlook is the robust demand brought on by a number of reasons. The idea of gold being a safe haven serves as one of the primary triggers.

Read this blog to know about pricing index of metals. Click here.

Steel

One of the main metal commodities is steel, the demand for and price of this commodity largely reflect the resilience and recovery of the global economy. Over the past few years, China has been both the largest producer and user of steel. The government’s lenient monetary policy drives the demand for steel in China , the ease of obtaining credit, and construction activity.

Silver

According to Metal pricing index, factors that affect the price of gold are different for price of silver. Higher demand and price volatility for silver were caused by the rise in developed economies. Although silver’s outlook is bullish, how much it has increased over the past few weeks, can anticipate a short-term pullback.

Silver’s price growth in recent years has been far more rapid. This is due to the fact that silver falls within the category of both industrial and precious metals. Industrial metals drives demand by consumption from a variety of industries. Precious metals drives demand by investment.

Aluminum

The price of aluminum has increased as a result of the sharp increase in energy costs. Energy is a significant expense in the manufacture of aluminum. Big investors, who balance their portfolios with other industrial metals, are another factor affecting the price of aluminum.

Will the base metals commodity prices continue to rise or decline? This is a difficult question. Due to the alleged ephemeral nature of causes, market participants appear to anticipate a peak in metal prices rather soon. In fact, futures markets predict that the price of industrial metals would rise by 50%(2021) but fall by 4.5%(2022).

Despite efforts to calm China’s overheated real estate market, a decrease in demand is projected in the short- to medium-term. In future, analysts predict that demand from developing countries & better-developed ones will close this demand difference in metal pricing index.

However, prices are predicted to stay high and may even go up further. According to the metal pricing index, particularly if demand from an energy transition picks up speed. On the other hand, prices can drop more than anticipated if necessary government activities & legislative approval for the infrastructure & energy transformation initiatives do not take place as anticipated.

Read about Tips about Commodity Intraday trading.

If there’s one thing that’s true about gold and silver prices, it’s that they’re always changing. As we write this, silver is up and gold is down, yet by the time this post is published on our blog about buying and selling gold, the reverse may be true. That said, what factors influence gold and silver prices? Let’s take a closer look.

1. Economic data

The monthly jobs report. Wage data. GDP growth. This sort of economic data can influence the Federal Reserve’s policy decisions, which in turn can influence gold prices

If the U.S. economy is strong – unemployment goes down, manufacturing increases, the GDP grows – gold prices tend to drop. That’s because the price of gold is tied to interest rates. In stronger economic times, borrowing increases, interest rates go up and gold becomes a less attractive investment.

On the flip side, negative economic news – rising unemployment, stagnant manufacturing, etc. – can cause gold prices to rise.

2. The U.S. dollar

Silver and gold are considered “dollar-dominated assets” because global markets measure them according to the U.S. dollar.

And the relationship between gold and silver prices and the U.S. dollar has been the same for nearly 50 years: when the dollar is stronger, metal prices are lower. When the dollar exchange rates drop, the cost of gold and silver goes up.

Investors tend to shy away from gold and silver when the dollar is high because they will get less for their money.

3. Supply and demand

Gold and silver are like any other commodity and subject to the law of supply and demand. Increased demand coupled with limited supply will drive prices higher.

In the case of silver, much of the demand is driven by this metal’s use in industrial and medical manufacturing. Silver is found in everything from cell phones to hospital disinfectants and the low number of worldwide silver mines means demand will often outstrip supply.

Therefore, if one of those sectors becomes especially busy, or there’s a boom in new technology, the demand for silver will rise.

COVID-19 and gold and silver prices

How has the COVID-19 outbreak affected gold and silver prices? When the outbreak began, the stock market experienced a swift decline and many financial institutions sold their precious metal contracts, causing the price of gold and silver to plummet.

However, mint closures triggered by the pandemic cause the demand for silver coins and bullion to rise in April, leading to a shortage that raised prices.

We’re not sure what the future will bring, but regardless of what happens to gold and silver prices, we always return to the same idea: that you invest in these metals to preserve your wealth.

And before you buy – or sell – gold, we recommend consult with an expert. Doylestown Gold Exchange is here to help you.

For nearly 30 years, we’ve been providing precious metal consultations to people throughout the Bucks County area. Whether you want to invest in gold or sell your metals, our experts can make sure you get a fair price.

We also recommend checking out our homepage, where our tracker offers round-the-clock updates on gold and silver prices.