Why Gold and Silver Are Climbing and What That Means for InvestorsTrevor Gerszt
Our economy is very much governed by its surroundings. The announcement of a federal interest rate hike often causes the stock market to decline, even before it goes into effect. News of Brexit last year caused both the pound and the euro to plummet in value, even though Britain was still nearly a year away from taking even the first steps towards actually leaving the EU.
Now, it’s the dollar’s turn. In a recent interview with the Wall Street Journal, President Trump stated that the U.S. dollar was getting too strong recently, and that that made it difficult to compete with other countries, whose currencies are being devalued. In response, the dollar’s value dropped almost immediately, to a two-week low. But as a result of that, gold and silver both took a serious upswing in the aftermath.
The Problems of a Strong Dollar
Trump’s comments did have a certain amount of merit. Though there are a number of benefits to a strong dollar, there are problems with it as well. One of those is that it becomes more expensive to do sell our goods to other countries.
If the dollar rises five cents compared to, say, the Euro, then everything we sell to Europe becomes five cents to the dollar more expensive. Meanwhile, if China, for example, keeps the yuan artificially low, then international business with them is cheaper, and it can become difficult for our country to compete.
But is the U.S. dollar getting too strong? That’s more difficult to say. Several factors last year sent its value soaring, including Brexit, as we mentioned earlier. Additionally, after the November election, the dollar’s value increased even more, hitting its highest level in nearly a year. However, this year, even before Trump’s comments, the dollar had been suffering a decline, having sunk about 2% in 2017.
Gold and the Dollar
After Trump’s comments, the value of the dollar dropped by around 0.6%. Its value against the yen was the lowest it had been in five months. Meanwhile, both gold and silver soared, with gold climbing past $1,288.50 an ounce, the highest it’s been since before the election, and silver experiencing a 1.2% gain, pushing its level to the highest it had been since just after the election.
Nothing happens in a vacuum. Not only do world events impact our economy, they also have a ripple effect. In this case, when one investment is threatened, people naturally turn to another type of investment, to protect them. Gold and silver are two of the most popular options for this, acting as safe havens against the volatility of other markets. For this reason, they tend to go up as other markets go down.
Benefits of a Silver Investment
Of course, if the markets are so easily swayed, then what happens when another offhanded comment from President Trump, or someone else in power, pushes the markets the other way? Will gold and silver decline again, in response? Perhaps temporarily, but that doesn’t make them volatile. In the long run, they’re among the most stable investments you can make. Silver in particular has a number of benefits.
Silver is cheaper than gold, which makes it easier to buy and sell in small quantities. But it generally trends upward during times of market volatility. In fact, during bull markets for precious metals, silver tends to rise higher than gold, percentage-wise, making it a profitable investment overall.
Furthermore, supply and demand of silver is shifting favorably for investors. Inventories are declining due to a reduction in silver mines over the last few years. Meanwhile, use of the metal is going up, as it becomes an increasingly important component in a variety of electronics and technologies, from solar panels to medical equipment. As supply falls and demand rises, the value is poised to go up significantly in the future.
But the most appealing aspect of both gold and silver investments is the safety they offer. They’re not subject to inflation, nor are they affected by the same volatility that other markets endure. In fact, as we’ve seen demonstrated in this situation with the U.S. dollar, as other markets decline, gold and silver tend to go up.
Therefore, if you have a portion of your nest egg in precious metals, they can protect you from that volatility. Even if your investments in stocks and currency plummet, you still have gold and silver to fall back on, and your savings is saved from being wiped out.
Is the dollar too strong? Will the impact of Trump’s statement continue to drive its value down going forward? Only time will tell. But no matter what the dollar or the markets are doing, a silver or Gold IRA is a wise idea.