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Buying precious metals such as gold or silver has been a popular investment for centuries. While these assets have a fixed supply, that’s not the case with fiat currencies. Money is devalued to overcome economic problems, but precious metals do not lose their value so sharply.
The past decade, however, saw a diminishing interest in precious metals, given new assets such as cryptocurrencies drew the public’s attention. At the same time, because the US Dollar rose against most of its peers, this has not been a good period to hold gold or silver.
Gold and silver
People have been buying and selling, investing and even trading precious metals for a few good decades now (including in the form of CFDs). The rise of online trading made it possible to buy/sell-short contracts on gold by using brokers like Invest Ecapitals.
However, despite the rise of retail trading and greater involvement in financial markets, both gold and silver trade below their 2011 highs when priced in USD. Expectations were completely different but were based on the fact that the Dollar would be forced to weaken, after the 2008 financial crisis.
That did not happen, leading to underperformance in precious metals. Geopolitical tensions are another reason used to spur investments towards gold, yet despite a war in Ukraine and rising conflicts inside/between countries, the price of gold is down in 2022.
Currency moves and interest rates
Some might argue that this is no longer a good store of value. In reality, it is important to highlight that like any other asset class, pricing is influenced by different variables. According to experts working for Invest Ecapitals, factors rising interest rates and the good year that the US Dollar has been having, act as headwinds for precious metals.
Traders and investors who want to buy these assets should take a close look at what happens in the currency space or the interest rates markets, because major trends developing there could offer insights into where the price of gold, for instance, might be headed.
Also, price moves up and down based on demand/supply imbalance. There needs to be persistent buying interest to prop up valuations, something that has not happened, considering capital has been drawn into other markets.
Timing is what matters most?
Precious metals tend to have a stable price performance, so these assets are suited for investors who don’t wish to navigate wild swings. Like any other investment, timing plays an important role. This market will generate new investing/trading opportunities in the future, there’s no doubt about that, but it’s up to the investor to make the right call at the right time.
Restrictive monetary policies, contracting monetary supply, and higher demand for cash as opposed to asset allocation, make precious metals underperform at the time of writing. Things can change when financial markets turn the other way around, so in the meantime, short-term trading is the right approach.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.