Everything you need to know about Gold/ Precious metals/ Minerals, Oil & Currency !!

Let us talk about everyone's favorite shiny "Gold" first.

Have you ever wondered about "How the price of precious metals is decided" ? 

Be it Gold, Silver, Platinum, Diamond, Copper, Aluminium, Zinc, Nickel, Graphite, Uranium, Lithium or Plutonium !!

In layman terms, the answer is "Demand & Supply".

But what factors are involved in concluding that "Demand & Supply" conditions ?

• Usability (The more the number of uses a material has, the higher the price).

• Durability (The longer period of time a material is available for the usage, the higher the price).

• Rarity (Minerals & Precious metals are considered as "Natural resources" and in most cases they have to be mined). 

• The harder it is to mine a mineral or metal, the higher the price.

• The lesser the supply of mineral or metal, the higher the price.

• The higher the demand of mineral or metal, the higher the price.

Simple economics !!

What many people do not realize is that the "Price of a Commodity" is also dependent on the "Rate of Inflation".

Much like any other "Asset class" or "Market" or "Industry", "Inflation" is also "Cyclical" in nature.

"Gold" as an "Asset class" can be seen as a "Safe haven" & it is a Universal fact that a safe instrument cannot yield much "Return on Investment".

Adjusted for the "Inflation", from the period of 1990-2020, "Gold" has given an average return of measly 360 %, while over the same period the "Dow jones industrial average" has given an average return of 991 %.

Hence "Gold" should only be looked as a "Short term investment" with the perspective of it providing a hedge against inflation or when the "Equity market" seems to be extremely risky.

Now let us take a dive into "Oil".

"Crude oil" as we know has to be "Refined" in order for it to become usable as "Fuel".

The prices are determined according to the "Demand & Supply" conditions.

• When the "Oil producing" nations cut or clear or release the stockpiled "Inventory", assuming that the "Demand" is stable, this activity impacts the price of "Oil" negatively as it "Increases" the "Supply" in the market.

• When the "Oil producing" nations hold or stockpile the "Inventory", assuming that the "Demand" is stable, this activity impacts the price of "Oil" positively as it "Decreases" the "Supply" in the open market.

For a country like "India" which is a net importer of "Oil", the lower the price, it is better for the economy.

But it is an isolated parameter.

Considering that we all live in a "Global economy", the low prices of "Oil" might hurt the economy of Oil producing nations and have a negative impact on the overall "Global economy" and hence on "India" as well. 

That is why according to many reports and surveys it is believed that 45-50 $ per barrel is the "Sweet spot" price range for the "Oil" in order to maintain the balance of economy between "Oil exporting and oil importing countries".

Finally, let us jump into the "Currency" section for all the "Forex" lovers out there.

In terms of "Traded volume", the "Currency or the Foreign exchange (FOREX)" is the biggest market.

Why not, after all it is involved in everything we do. 

From "Banking system" to "Trade deficits" to "Purchase of goods & services" to "Imports & Exports" to "Political campaigns" to the "Soap we take a bath with" to the "Toothpaste" we use to brush our teeth, everything depends on the "Exchange of value" between two parties and all of it is based on "Currency".

Yes, i know digital currency and all but for now the world is operating on "Dollars" so let us talk about that only.

Disclaimer : No offence to "Elon Musk".

I track only 1 pair of currency and that is "USD/ YEN".

For one who did not understand, "It is the value of 1 Dollar to 1 Yen".

In even simpler terms, "It is the value of 1 Benjamin Franklin to 1 Yukichi Fukuzawa".

Right now, the "Currency pair" is trading at 108.92, so it means that for "1 Dollar you get the value of 108.92 Yen".

• The US Dollar is considered to be a "Risk-on" currency which means that in the case "Dollar is going up against the Yen", investors/ traders are willing to the take the "Risk" and are not averse to it.
  

• The Japanese Yen is considered to be a "Risk-off" currency or a "Currency safe haven" which means that in the case "Dollar is going down against the Yen", investors/ traders are in a cautious mood and are not willing to take much "Risk". Hence we can say that the general sentiment is being "Risk averse".

To connect with us for "Free", you can checkout the links below :

Telegram : Logical Investor

Whatsapp : +91 8527767668

Quora : Trade & Invest

 

Regards !!