Many investors in gold, silver, and other metals of high value know that they are very volatile. This means that their prices can change rapidly and without a whole lot of warning. Over the long term, prices tend to be relatively steady. In the short term, though, prices of precious metals can flip flop like nothing else. Many who are thinking about investing in these metals wonder why these prices are like this.
The main reason that precious metals can be so volatile is that their prices are based mainly on supply and demand. While supply remains relatively steady, demand can change rapidly and without a lot of notice. This is because people demand metals based on their mentality about the market rather than on things that are actually happening in the market.
Here’s an example:
Recently, the prices of gold, silver, and other metals have skyrocketed from a very low point during the nineties. The reason for this is that people perceive precious metals to be a safe place to store money when all else is failing.
Basically, what happens is this. When the economy was booming, not many people put their money into gold and silver. Instead, they went off to seek their fortunes in stocks and money market accounts with high interest rates. This paid off for a while. Unfortunately for these people, the recent crashes in stocks and interest rates left them losing money. For many people, capital was lost because of these major investing issues.
When this happened, people started to understand that only metals that had an inherent value would be able to save them from financial ruin. For this reason, they decided to put their money into metals. Because of this, the demand for these metals rose practically overnight. With the rise in demand came a huge rise in price that made investors who already had metals holdings very happy and that made some people very wealthy.
This isn’t the only time this pattern has been repeated. Throughout history, things that made people feel less financially secure – wars, political upheavals, recessions, etc. – have made them want to invest in precious metals. When this happens, the prices of these metals inevitably rise higher than most people could have predicted. This is why it’s a good idea to be one of the few people who already have holdings in precious metals before things go wrong financially!
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